Risk Assessment

As you develop your college savings investment strategy, one consideration is your propensity to tolerate risk. Are you aggressive, conservative, or somewhere in between? Use this tool to help you understand where you may fall on a spectrum. Let's begin.

Portfolio Gain and Loss

If you had $22,000 to invest for a ten-year period, which portfolio would you prefer?

A. Low risk/low return. One which may be expected to grow 2-3% per year in most years, but is likely to lose 2%-5% in one of those years.

B. Some risk/medium return. One which may be expected to grow at an average 4% per year, but is likely to lose 10% in one of those years.

C. Higher risk/high return. One which may be expected to grow at an average 6% per year, but is likely to lose 20% in one of those years.

D. Highest risk/highest return. One which may be expected to grow at an average 7% per year, but is likely to lose 25% in at least one of those years.

Portfolio Declines

Your total education savings portfolio declines in value by 15% in one year. When you selected this portfolio, you believed it was very appropriate. Which of the following are you more likely to do?

A. Change the Portfolio. If a portfolio goes down 15%, it is obviously too risky for me. This would keep me awake at night.

B. Stay the Course. I have a long-term perspective for my education funding assets. I understand that my portfolio can decline in the short term, but I am willing to accept short term losses if that is what it takes to earn a potentially higher long-term rate of return.

Market Fluctuation

When the market goes down, my preference would be to sell some of my riskier assets and put the money in safer assets?

A. I agree.

B. I somewhat agree.

C. I disagree.

Staying Power

Your ability to take risk may relate to your investment timeframe, so it's important to know if external factors may cause you to terminate your program prematurely. How likely is it that you will be able to keep all of your contributions in the plan until the student begins college.

A. Unlikely. I can think of several reasons why I might not maintain the plan for the full period contemplated.

B. Somewhat doubtful. I can envision certain situations where I may need to take money out of the plan early.

C. Very likely. I have adequate emergency funds and insurance coverage, so it is not likely that I would need to terminate the program prematurely.

The Risk-Return Trade-Off

Check the statement that better describes how you view the risk-return trade-off.

A. The most important thing is to keep annual volatility (or declines in value) within a comfortable range, and then to accept whatever results the strategy produces.

B. The most important thing is to try to achieve the goal I have in mind and to accept whatever volatility (or declines in value) occurs along the way.

How Important Is It to Hit Your Goal?

Check the statement that better describes the importance of meeting your goal.

A. Important, but not critical. I would like to accumulate as much as possible towards my goal, but if I don't make the goal I have in mind, other resources are available. I may be earning more in my career, other family members may volunteer to help or my child may qualify for scholarships or other assistance.

B. Very Important. If the goal I have in mind is not achieved, more borrowing for tuition payments may be required than I am comfortable with. I do not want to incur extensive loans that may impact my ability to save for my own retirement after my child starts college. Neither would I like to burden my child with extensive loans to repay soon after graduation.

Pattern of Future Contributions

Adding funds to your account periodically may reduce overall portfolio risk (because you would buy more shares if share values were lower). Which statement best describes your plans?

A. I do not plan to make future contributions to this account.

B. I plan to make contributions as I am able, but probably not every year.

C. I plan to make annual contributions of about the same amount every year.

Considering Losses and Gains

Given the best and worst case returns of the four investment choices below, which would you prefer?

A. $200 gain best case; $0 gain/loss worst case

B. $800 gain best case; $200 loss worst case

C. $2,600 gain best case; $800 loss worst case

D. $4,800 gain best case; $2,400 loss worst case

Your Result

We calculated your risk tolerance as: CONSERVATIVE

Risk/Reward Profile:

Conservative

A Conservative investor values protecting principal over seeking appreciation. This investor is comfortable accepting lower returns for a higher degree of liquidity and/or stability. Typically, a Conservative investor primarily seeks to minimize risk and loss of principal.

Moderate

A Moderate investor values reducing risks and enhancing returns equally. This investor is willing to accept modest risks to seek higher long-term returns. A Moderate investor may endure a short-term loss of principal and lower degree of liquidity in exchange for long-term appreciation.

Aggressive

An Aggressive investor values maximizing returns and is willing to accept substantial risk. This investor believes maximizing long-term returns is more important than protecting principal. An Aggressive investor may endure extensive volatility and significant losses. Liquidity is generally not a concern to an Aggressive investor.