What's Your Score? To score the risk colerance (est simply add up me points. You will receive one
Ultra Conservative
10
8
37%
•
CUll 18"-
"
..... ,,,.
Fairly Conservative
3. Moderate Cash Bonds Stocks
Bonds
22
24
no
__
Casb
Bonds 57,.
";.I
7% 93%
20
Step 2 Understanding your basic investment options
Ultraconservative
Stocks:
18
Ultra-aggressive
rolerance levels:
2. Fairly Conservative Cash: 12% Bonds: 51 % Stocb 37%
16
Stocb snlo
The following is a list of some sample asset allocations based on five basic risk
67% 15%
14
Bonds Srocks
risk rolerallce level.
"~OC"
12
I
5. Ultra Aggressive Cash 0%
These questions and this scoring scale is meant [Q be used only as a guide your actual investment plan may vary based on additional information that was not asked in [his questionnaire. But, after you have scored your risk tolerance level, the next step will be (0 ereare a porrfolio of investments that matches your asset allocarion to your
1. Ultra Conservative 18%
Fairly Aggressive
I
me risk cole ranee scale at right.
Cash Bonds Stocks
For this article, we will define a cash investmem as anything that carries a maturity date of less than 12 mOlHhs. Therefore the most common cash investments would include: Checking accounts Savings accounts Money market aCCOlllHS And shorr-rcrm CDs The advanrage of Cash invcsrmems IS their safety and their liquidity. The disadvantage is theif low return.
Bo/uis Bonds are also known as fixed income invesrmenrs. Bonds give you the opportunity to pur a specific amount of money inca an investment, receive a specific and usually dependable return, and then get your original invesrmenr back on a specific
fucure date. 5% 38% 57%
......
;J
Bonda3lt'llo
Ultra Aggressive
Fairly Conservative
point for each number that you circled. For example. if you circled 3 1, you receive one point. If you circled a 4, you receive four points. Please count the number of poincs you circled and place
a nar on
Moderate
c.h5~oderate
There are several bond strategies available fot a 40 I (k) investor: ",. Short-term strategy - shon-cerm bonds will mature in less than five years. They catry the lowest yields and the smallest amount of principal Aucru3rion. Risk averse
invcstOrs may
want
co buy high qualiry
shon-term bonds. 4. Fairly Aggressive c.nK Intermediate strategy - imermediare Cash 3% bonds offer maturities from five to ten years • Bonds 21 % Bonds 21% 10 lengrh. These bonds should give you a Equiry 76% somewhat higher yield that a similar shorr~78" [eTm hond, bur because of their extended . Fairly Aggressive maturiry dates, they have more volatile price fluctuations.
Long.term strategy - long-term bonds vary in length from 10 ro 30 years. They
16 The Arkansas L"''Yer 'MWI.8I1<bar com
26
28
30
32
34
36
38
40
often pay an even higher rate of rerurn man an imermediare bond, but because of their length. iliey have the most price volatiliry. Stocks
Stocks have hisfOricaJly been the favored asset class for long-term investors who have the time and the appropriate risk colerance level ro ride our the volatiliry inherem in the Stock marker. Bur, as the marker place has become more and more sophisticated, an ever-longer list of choices may have been added ro yout 40 I (k) plan. Hete ate some of the more common growth invesrmem options. Standard and Poor's 500 J/ock inda It is one of the most widely followed scock benchmarks. This index dates back CO 1923 and currently includes 500 stocks from 83 indusrries. Ir is often thoughr of as rhe "if you can't be3r 'em, join 'em" invesrmenr straregy. Larg< Cap Growtb Stocks Also known as large caps. Some investmem analysts consider a company with a market capitalization of over $2 billion to be a large cap stock. These companies are often well known srocks and arc referred ro as blue chip stocks. These srocks are growth oriented and are often in the faStest-growing industries. Industries might include rechnology, health care, telecommunications and some financials. Larg< Cap Vatu< Stocks Are known as large caps as well, but they are very different from the growth Stocks we just described. These companies are very large and well known bur they tend ro come from the older, "boring" industries like, transportation, energy, uriliries and consumer cydicals. It is importanr to understand the vasr difference berween growth stocks and value Stocks. They can both playa role in helping you reach your future financial goals, but they often rOt3te in and out of favor. For example, when growth srocks are in vogue, vaJue stocks may underperform and then growth may move inro a period of