Risk Tolerance

When it comes to investments, there is a definite relationship between risk and reward. Generally, the more potential reward from an investment, the more risk it carries.

Sources of Risk

In general, there are various sources of risk. Here are six key ones:

• Economy risk
• Market risk
• Credit risk
• Specific risk
• Interest rates risk
• Inflation risk

Each investor has a different comfort level regarding how assets should be allocated. You probably have some idea whether your investment style is conservative, aggressive, or somewhere in between. An example of asset allocation based on risk tolerance is shown below.

Risk Tolerance Questionnaire

This short quiz will help you understand how much risk you are willing to take to reach your financial goals.