Assessing your Risk level

The main thing stopping me from investing at the moment is choosing which fund to invest in IE VLS60 or 80 & HSBC Global Strategy Balanced or Dynamic.

Anyone have a site they can recommend where I can answer a bit more of an in depth questionnaire than the standard 6 question ones you get.

As I'm struggling to decide where I sit with my equity / bond split.

Thanks all
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  • TARDIS
    TARDIS Posts: 160
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    There are various more in-depth questionnaires you can pay to complete but I'm not sure you can accurately assess your risk tolerance until you've seen how you actually react when your investments go through a crash to be honest. It's difficult to predict how you act in a hypothetical situation.

    If you're uncertain, it may be best to start at the lower end ie balanced/VLS 60. The worst thing you can do is start too high risk, panic and sell when prices dip.
  • ValiantSon
    ValiantSon Posts: 2,586 Forumite
    I understand your concern, although I'd suggest that it may be pointing you towards the lower volatility options because if you were less risk averse you would show greater confidence in the riskier funds.

    Nonetheless, you might like to look at the following:

    https://www.oldmutualinternational.com/other/Adviser/investment-and-funds/how-to-approach-investing/Risk-assessment/risk-profiler-tool/ N.B. It is American and meant for financial advisers to use with their clients. Please note, I urge real caution with using this. It might help you to think about some issues, but don't take the end result as a hard and fast one. Having done it myself just out of interest, it came out fairly close to my own perception of my risk tolerance, and fitted reasonably well with a risk assessment done with an IFA a couple of years ago, but it is not foolproof, and I had to go with some best fit options as my true response wasn't available.
  • Audaxer
    Audaxer Posts: 3,506
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    bcfclee27 wrote: »
    The main thing stopping me from investing at the moment is choosing which fund to invest in IE VLS60 or 80 & HSBC Global Strategy Balanced or Dynamic.

    Anyone have a site they can recommend where I can answer a bit more of an in depth questionnaire than the standard 6 question ones you get.

    As I'm struggling to decide where I sit with my equity / bond split.
    How would you feel if you invested the £40k in VLS80 and HSBC Dynamic a few weeks ago, just before the prices started falling? Hopefully you would think, "that's okay I'm in it for the long run". If they continued to fall over the next few months, falling to up to 40%, would you still feel the same? If not or you're not sure, maybe you start off at a lower risk level.
  • I came out as 4 which sounds about right. I am cold and calculating but not a swivel eyed loon when it comes to taking risk. I did chicken out of Chinese investments.
  • bcfclee27
    bcfclee27 Posts: 228
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    Audaxer wrote: »
    How would you feel if you invested the £40k in VLS80 and HSBC Dynamic a few weeks ago, just before the prices started falling? Hopefully you would think, "that's okay I'm in it for the long run". If they continued to fall over the next few months, falling to up to 40%, would you still feel the same? If not or you're not sure, maybe you start off at a lower risk level.

    If that happened I would think oh b******s !!!

    But I wouldn't touch the investment if anything I'd start buying more.
  • fun4everyone
    fun4everyone Posts: 2,305
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    Another point to consider about investment falls, which I feel is often overlooked, is the time they last for.

    A 40% drop is easier to stomach if it is over quickly and recovers sharply. However look at something long and drawn out like the dot com crash. That bear market was a real stinker that lasted 3 years and wiped large percentages off equity portfolios. It's easy to imagine you can handle a 50% drop but can you imagine logging in every day just to see your valuation go down and down and down and down day after day month after month year after year? That is psychologically hard to stomach as you will really question if it was a good idea to invest or not.

    It's easy to give the advice "only check once a year/quarter" but being honest the reality is most people check daily, especially with significant sums invested. Headline news about stocks dropping causes people to check more frequently also.
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    How much can you afford to lose?

    That's a basic but sound barometer.
  • bcfclee27
    bcfclee27 Posts: 228
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    I came out as 4 which sounds about right. I am cold and calculating but not a swivel eyed loon when it comes to taking risk. I did chicken out of Chinese investments.

    I came out as a 4 also.

    So would that put me in VLS 80 or 60 territory ?
  • chucknorris
    chucknorris Posts: 10,785
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    edited 5 February 2018 at 9:04PM
    Audaxer wrote: »
    How would you feel if you invested the £40k in VLS80 and HSBC Dynamic a few weeks ago, just before the prices started falling? Hopefully you would think, "that's okay I'm in it for the long run". If they continued to fall over the next few months, falling to up to 40%, would you still feel the same? If not or you're not sure, maybe you start off at a lower risk level.

    I think that is a too simplistic approach, for me it is all about, have I got significant sums to invest more when the price has dropped, and the time for it to recover. In in the past I did, so I was 'almost' happy when the price fell. But going forward I don't feel the same, when I sell my investment property, I can't really invest it in equities, because then I would nearly have all my eggs in one basket, and having almost retired at 60, I could not take advantage of lower prices if there was a crash. So, semi-reluctantly, I have decided that the time to invest in bonds is fast approaching. I should add that I don't need to make more money, I have at least what I need, so there isn't any point in taking on more risk (I probably won't be able to spend any additional gain anyway). Although that sounds quite simple, it took me a while to realise what I should be doing.

    So for me, the factors are:

    1. Age.
    2. Ability to re-invest in a correction.
    3. Would the gain from taking on more risk actually be a benefit.
    Chuck Norris can kill two stones with one birdThe only time Chuck Norris was wrong was when he thought he had made a mistakeChuck Norris puts the "laughter" in "manslaughter".I've started running again, after several injuries had forced me to stop
  • Alexland
    Alexland Posts: 9,653
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    edited 5 February 2018 at 9:09PM
    Did you have a play with the Vanguard asset mixer? It's a bit basic and only covers 30 years data but the real lesson is that there's not much difference in the average annual returns from a 60/40 mix at 9.54% and an 80/20 mix at 9.77% but there is a difference between the max annual drop of -16% and -23% respectively. Remember the max drop on a rolling year basis is likely to be higher and a market may drop for longer than one year.

    https://www.vanguardinvestor.co.uk/investing-explained/tools/asset-mixer

    So basically if you are unsure then it might be worth playing it safe to start with while you develop your ideas further.

    However your appetite for shares may increase as the market starts looking better value and may fall back as markets start hitting historic highs.

    Alex
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