December.15.16Personal Finance
Money Matters with Nimi

One of the basic principals of investing is that the higher the return you seek the more risk you face. Your investments need to strike a balance between risk and a return that you can be comfortable with. Therefore, before you make a decision on any investment, you need to consider your own attitude towards risk. The following questionnaire will help you determine your risk tolerance level.

1. Which factor would you consider to be most important before choosing an investment?

My priority is the complete safety of my investments. I do not want to risk losing any of
my principal at all. (1)
My investments should be able to give me some income. (2)
My investments should give me some income and also grow in value over time. (3)
My investments should grow over time, but I would also like some current income. (4)
My priority is for my investments to grow substantially in value over time. I do not need
any current income from the investments. (5)

2. The value of an investment can go up and down. How much volatility are you prepared to tolerate?

None. I do not want to lose any money, even if it means that I have very low returns. (1)
Some. I am prepared to accept some fall in the value of my investment, if it is expected to grow over time. (2)
A lot. I am prepared to take substantial risk to achieve much higher returns. (3)

3. Investments in which the principal is 100% safe often do not keep pace with inflation. This means a loss in purchasing power.

My money should be 100% safe, even if it means my returns do not keep pace with inflation. (1)
I am willing to risk an occasional loss in principal so that my investments may at least keep pace with inflation over time. (2)
My priority is for my investments to grow faster than inflation. I am prepared to take substantial risk in order to achieve this. (3)

4. I understand that the value of an investment can go up and down over time. However, over a one-year period, the maximum loss that I would be prepared to accept is:

0% (1) 5%(2) 10%(3) 20%(4) 30%(5)

5. Many investments fluctuate over the short term. If a N100,000 investment that
you made for five years lost value during the first year, at what point would you
sell and move to a more stable investment,
rather than wait for a turnaround?

N95,000 (1)
N90,000 – N94,000(2)
N80,000 – N89,000(3)
Less than N80,000 (4)
Never, I will stay the course (5)

6. Consider the following investments. Investment A provides an average annual return of 10% with minimal risk of loss of principal. Investment B provides an average annual return of 15% but carries a potential loss of principal of 20% or more in any year. If I could choose between investment A and Investment B, I would invest:

100% in Investment A and O% in Investment B. (1)
80% in Investment A and 20% in Investment B. (2)
50% in Investment A and 50% in Investment B. (3)
20% in Investment A and 80% in Investment B. (4)
0% in Investment A and 100% in Investment B. (5)

In general, the higher your score, the more willing you are to assume financial risk. Please note that your responses may change as you go through various life stages and your circumstances change.

5 – 10 Conservative
I don’t want to lose any money at all. Keeping it is more important than keeping it. I’ll
accept an average return of about 10% a year.

11 – 15 Moderate
I still don’t want to lose my money, but I’m willing to accept some risk where it is possible for my money to grow 11% – 13% a year.

16 – 19 Moderate to Aggressive

I want both safety and growth. So, I will accept a fair amount of risk for an annual return of 13% to 15%.

20 and over Very Aggressive
I really want my investment to grow by over 15% a year, so I am willing to assume more risk.

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