Investor risk profile test
Your risk profile depends on three things: time horizon, financial capacity to absorb losses, and psychological tolerance for downturns. A conservative profile reduces volatility but risks not outpacing inflation; an aggressive one maximizes expected return in exchange for 30–50% drawdowns in the worst years.
Formula: Combined score of horizon, income stability, experience and reaction to downturns.
Investor risk profile test
Five questions to place your profile. This is guidance, not investment advice.
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How to use it
- Answer honestly. Think about how you actually acted in past downturns, not how you think you'd react.
- Review your resulting profile. Check it against the split the 110-minus-age rule suggests.
- Pick a final allocation. If torn between two profiles, go with the more conservative one.
- Revisit every two years. Or after any major change in income, family or net worth.
Capacity versus tolerance
Capacity is objective: how much you can lose without derailing your goals. Tolerance is psychological: how much you can lose without selling in a panic. The right portfolio respects whichever is lower, because selling at the worst moment turns a temporary drop into a permanent loss.
- A short horizon lowers capacity even if tolerance is high
- Unstable income lowers capacity
- Selling during the last downturn is the clearest sign of low tolerance
From profile to portfolio
Your profile sets the stock-versus-bond split; everything else — geographic diversification, currency, costs — is an implementation detail. A globally diversified index portfolio matched to your profile covers most needs without added complexity.
Frequently asked questions
- Does a conservative profile protect me from losses?
- It reduces volatility, not eliminates it: bonds also fall when rates rise. In exchange, you take on the risk of not beating inflation long-term.
- Is this the same as my broker's suitability questionnaire?
- No. This is an educational tool; your broker's formal risk assessment carries regulatory weight and also evaluates knowledge and experience.