Online Lesson

Take a Risk on Investor Island (Part 3)

Introduction:

Risk tolerance refers to a person's ability to live with risk. Risk tolerance varies from person to person.

Task:

In this lesson, you will answer a series of questions that will help you determine your personal level of risk tolerance. You will then create a personal investment plan that takes into consideration your comfort with risk.

Process:

Activity 1: Are You a Risk Taker?

Take the Risk Taker Test to find out whether you are a risk taker.
Click here for the Risk Taker Test

THINK ABOUT IT

• How would you describe your risk tolerance relative to that of other people?
• Why do you think you are comfortable or uncomfortable with risk?

Activity 2: Create an Investment Plan

If you had $5,000 to invest, how would you invest it? For this activity, you may invest in any of the choices described in the lesson. Write a short essay that states your investment choice. If you choose a mutual fund, tell what kind of securities would be in the fund. Investment choices involve trade-offs. Identify at least one thing you had to give up to get something else. Be sure you include an explanation how each of the following factors influenced your choice:

• Investment goals
• Return
• Risk
• Liquidity

Conclusion:

How a person invests his or her money is a very personal decision. The choice depends on how the investor views these factors:

• Desired Return
  How much money an investor can expect to make on the money she or he has invested. Also, whether the investor is seeking current income, future growth or a combination of both.
• Risk Tolerance
  A person's ability to ride out the ups and downs of the market without panicking when the value of investments go down. People who don't sleep well at night when the value of investments goes down should select savings and investments with less risk.
• Liquidity Preference
  How quickly and easily an investor wants to be able to access money invested without incurring a loss.

Assessment Activity:

You will be evaluated based on the personal investment plan you create as part of Activity 2. Your teacher may also evaluate you on your answers to questions in the THINK ABOUT IT section.