Investment Risk Tolerance Quiz: Find Your Risk Level for Smarter Investing

Written by Richard Barrington

Financial Expert

Edited by Kristin Marino

Managing Editor

The first step to being a successful investor is knowing your investment risk tolerance. Your financial situation, investment knowledge, and emotional reactions all play a role in determining what kind of investor you are. Risk tolerance refers to the level of risk you’re willing to take with your investments based on these factors.

While no general investment quiz is an exact science, answering key questions can help estimate where you fall on the spectrum from high-risk to low-risk investor. These questions also guide you in assessing your comfort level with investment risk, helping you make smarter, more informed decisions.

The questions themselves may also help you think through the issues around investment risk and identify your comfort level with investing.

What is Risk Tolerance and Why Is It Important for Your Investments?

Risk tolerance refers to the level of risk an investor is willing to take in pursuit of their financial goals. It is determined by factors like age, financial situation, investment objectives, and emotional capacity to handle market fluctuations. Knowing your risk tolerance helps you select the right investment strategy and balance risk and reward effectively.

To determine your risk tolerance, assess your time horizon, comfort with losses, and past investing experiences. This guide will help you understand how to assess your risk tolerance and apply it to your investment decisions.

How to Assess Your Own Risk Tolerance?

This quiz is designed to help you understand your investing risk tolerance and identify the best investment approach for your needs. Here’s how to take it:

Answer Honestly

Each question relates to your financial goals, past experiences, and comfort with risk. Choose the answer that best matches your situation or feelings.

Keep Track of Your Responses

Write down the letter (A, B, C, or D) that corresponds to your answer to each question.

Tally Your Results

At the end of the quiz, count how many of each letter you chose. The letter with the highest count determines your risk profile.

Take The Quiz to Find Out Your Investor Profile

Match your result (Mostly A’s, B’s, C’s, or D’s) to the corresponding risk profile recommendation to discover which type of investor you are and learn about investment options tailored to your risk tolerance.

Take your time and answer carefully—it’s about finding the right investment strategy for you!

1. When will you need access to the money you’re planning to invest now?

1. I may need it very soon, within the next year.
2. Probably within one to five years.
3. Most likely within five to ten years.
4. Not for at least ten years.

Timing is everything. A long-time horizon allows you to take more risks. The sooner you need the money you’re planning to invest, the less risk you should take.

2. How much of a loss in value to your portfolio would make you feel very uncomfortable?

1. I could not tolerate any loss of value.
2. I could tolerate a moderate decline of perhaps 5% or 10%.
3. I’m prepared to ride out periodic market declines, even if they’re fairly serious.
4. I’m prepared to take the risk of permanent losses for the sake of a chance at high returns.

Investments can be anywhere on the spectrum, from fully guaranteed to carrying the possibility of total and permanent loss. Some risk is necessary to earn a higher return on investment, but you should always consider the worst-case scenario before investing.

3. Have you invested through a significant market correction before (i.e., seen your investments decline by 15% or more)?

1. No, I am new to investing.
2. I’ve seen some market ups and downs, but never anything as severe as a drop of 15% or more.
3. I have experienced a bear market in which my investments lost 15% or more in value.
4. I’ve been an active investor through multiple cycles of bull and bear market phases.

Theory is one thing, reality is another.

Investors often learn a lot about themselves by going through adversity. The tendency to panic out of investments when they lose value can make things worse by locking in those losses. Unfortunately, people don’t really know how likely they are to react that way unless they’ve been through it before.

4. How have you reacted to market corrections in the past?

1. I’ve never experienced a market correction – or when I did, I liquidated to guard against further losses once I saw my portfolio’s value going down.
2. I rode out the bear market, but I’d like to limit my exposure to it in the future.
3. I stayed the course then and would be prepared to do so again.
4. As the market went down, I was a buyer rather than a seller, so I could take advantage of lower prices.

During market declines, there are sellers, holders, and buyers. Your reaction under those conditions says a great deal about your tolerance for risk.

5. Are you regularly contributing to this account or drawing from it?

1. I draw at least 4% from this portfolio annually.
2. I neither put in nor take out much money, less than 4% annually either way.
3. I make regular, moderate contributions representing between 4% and 10% of the portfolio’s value annually.
4. I am saving enough to add to this portfolio at a rate of 10% or more per year.

Negative cash flow means you have a relatively short time horizon, which exposes you more to market fluctuations. On the other hand, positive cash flow can help you benefit from those fluctuations.

6. How well does your “after-taxes” household income meet your current spending needs?

1. My annual spending currently exceeds after-tax income.
2. My after-tax income is roughly equal to annual spending.
3. My after-tax income provides a modest margin over annual spending ($10,000 or less per year).
4. My after-tax income provides for a substantial (more than $10,000 per year) margin over annual spending.

The more your income exceeds your spending needs, the better positioned you are to make riskier investments.

7. What portion of your assets are you considering for investment?

1. I’m thinking about investing over 50% of my assets.
2. I’m thinking about investing between 25% and 50% of my assets.
3. I’m thinking about investing between 10% to 25% of my assets.
4. I’m thinking about investing less than 10% of my assets.

Put your investments in perspective.

The risk of any given investment should be viewed in context to the rest of your assets. The smaller an investment is, the less harm it can do.

8. How are most of your other assets invested?

1. My other assets are primarily in stocks and other volatile investments.
2. My other assets are a blend of 50% or more of stocks, with the remainder in less volatile investments.
3. My other assets are a blend of less than 50% stocks, with the remainder in less volatile investments.
4. All my assets are in high-quality bonds or cash equivalents.

Volatile investments are those that go up and down a lot and have a risk of permanent losses. If you already have a lot of volatile investments, you may want to balance that out with a lower-risk investment this time around.

9. How much non-mortgage debt do you have compared to your savings and investments?

1. My non-mortgage debts exceed the value of my savings and investments.
2. My non-mortgage debts are more than 25% of the value of my savings and investments but don’t exceed that value.
3. I have non-mortgage debts, but they are less than 25% of the value of my savings and investments.
4. I have no non-mortgage debts

Non-mortgage debts include personal loans, car loans, student loans, and credit card debt that carries over from month to month.

The more non-mortgage debt you have, the more of a demand it makes on your cash flow.

Unless you have substantial reserves to balance out that debt, this demand on your cash flow shortens your time horizon and increases your exposure to investment risk.

10. Have you taken any coursework in economics or finance?

1. No
2. Yes, at the high school level.
3. I’ve taken some courses in these subjects in college or grad school.
4. Yes, I have a degree related to these areas.

Educating yourself about economics, finance and investing is important. The more you know, the more informed your decisions will be about risk.

11. Do you feel that you fully understand financial instruments before you invest in them?

1. No, I just don’t have the time or the inclination to learn about how they work.
2. Not really. I’ve tried to research them a little, but I don’t feel I really get it.
3. I think I know the basics of stocks and bonds, just not some of the more complex strategies.
4. I think I have a good handle on everything from fundamental research to various options strategies.

Not everyone has a natural aptitude for investing, so be careful of taking risks you don’t fully understand.

Types of Risk Tolerance: What’s Your Investor Profile?

Now that you’ve completed the quiz, it’s time to review your answers. Count how many times you selected each letter, and the letter with the highest count will determine your risk profile. Based on your results, we have the following investor profile recommendations for you.

Mostly A’s – Your Risk Profile Recommendation: No-Risk Investor

Your answers suggest you are a no-risk investor. With your emphasis on stability, your investments won’t earn much, but they can provide the safety and liquidity you need. The best investments for you may be FDIC-guaranteed deposit accounts like savings and money market accounts. Certificates of deposit (CDs) are also a possibility if you can match the length of the CD to the timing of your cash flow requirements.

For more ideas on stable investments, visit MoneyRates’ Best Savings Accounts.

Mostly B’s – Your Risk Profile Recommendation: Low-Risk Investor

Your answers suggest you lean toward stability with a low tolerance for volatility. As a low-risk investor, your priority is preserving your capital while earning modest returns. You might consider investments such as high-quality bonds, bond mutual funds, or conservative balanced funds. FDIC-insured certificates of deposit (CDs) and money market accounts could also fit well with your goals, especially if you want minimal risk with predictable returns. These options allow you to grow your money steadily without exposing yourself to large fluctuations in value.

For more ideas on stable investments, visit MoneyRates’ Best CD Accounts.

Mostly C’s – Your Risk Profile Recommendation: Moderate-Risk Investor

Your answers suggest you are a moderate-risk investor. Your best approach might be to balance some higher-risk investments with more stable ones. This can increase your return potential but also open the possibility of some losses in your investments. You can pursue this kind of balanced approach by buying individual stocks and bonds or mutual funds through an online broker. You may also want to keep a portion of your money in more stable accounts like CDs. However, if you want help tailoring the right blend of investments to your needs, a robo-advisor can lead you through that process.

For more ideas on moderate-risk investments, visit our Guide to Robo-Advisors.

Mostly D’s – Your Risk Profile Recommendation: High-Risk Investor

Your answers suggest you are comfortable with high-risk investments. This may include a heavy concentration of stocks and possibly even riskier approaches such as options and margin trading. Such an approach allows you to pursue higher returns, but it also means accepting wide fluctuations in value and the possibility of permanent losses. A robo-advisor could help you map out an approach with an emphasis on stocks, but to make more targeted investments in high-risk vehicles, an online broker might offer more possibilities.

Common Mistakes When Assessing Risk Tolerance and How to Avoid Them

Determining your risk tolerance is critical in choosing an investment strategy that suits your financial goals and comfort level. However, common mistakes can lead to misaligned portfolios, unnecessary stress, and missed opportunities.

By understanding the pitfalls and using the practical solutions below, you can make better decisions and maintain confidence in your investments, even during market fluctuations.

Overestimating Risk Tolerance

Mistake: Believing you can handle more risk than you can during market downturns.

Solution: Reflect on past reactions to market fluctuations and take a conservative approach if uncertain.

Suggestion: If you panicked and sold investments during a market drop, consider balancing your portfolio with lower-risk assets like bonds or dividend-paying stocks.

Ignoring Emotional Factors

Mistake: Overlooking how emotions influence investment decisions, especially under stress.

Solution: Incorporate stress-testing scenarios into risk assessments and consider behavioral tendencies.

Suggestion: Use a simulator to visualize how a 20% loss would impact your portfolio and evaluate your comfort level.

Focusing Only on Short-Term Goals

Mistake: Aligning investments solely with immediate goals, neglecting long-term objectives.

Solution: Balance risk tolerance with both short-term and long-term financial needs.

Suggestion: Allocate a portion of your portfolio to stable, low-risk investments for near-term expenses while maintaining growth-oriented assets for retirement.

Misjudging Financial Capacity

Mistake: Confusing risk tolerance with the financial ability to absorb losses.

Solution: Assess your financial stability, savings buffer, and income predictability before investing.

Suggestion: If you don’t have at least six months’ worth of living expenses saved, prioritize building an emergency fund before taking on high-risk investments.

Failing to Update Risk Assessment

Mistake: Sticking to the same risk tolerance over time, despite life changes.

Solution: Reevaluate your tolerance periodically to reflect age, income, and changes in goals.

Suggestion: Review your portfolio at major life stages, such as marriage, buying a home, or nearing retirement, to ensure it aligns with your current situation.

Underestimating the Role of Diversification

Mistake: Assuming all risky investments are equal, neglecting portfolio diversification.

Solution: Diversify across asset classes to manage risk better while pursuing returns.

Suggestion: To reduce the impact of a downturn in any one sector, include a mix of stocks, bonds, and real estate investments.

Neglecting Education

Mistake: Making decisions without understanding investment basics.

Solution: Take time to learn about risk and reward dynamics before committing funds.

Suggestion: Learn all you can about investing, attend free financial workshops, or read introductory books like “The Bogleheads’ Guide to Investing” to build your foundational knowledge.

For more information on high-risk investments, see our Best Online Brokers Guide.