The quiz below will help you get a handle on your mutual-fund portfolio’s risk level. After you work through the five steps, tally your score and check the box below to see where you stand.
_ STEP 1: HOW ARE YOUR ASSETS ALLOCATED?
What percentage of your mutual-fund portfolio is in bonds and stocks? Exclude hard-asset funds, such as those that focus on gold, energy and real-estate securities.
Give yourself one point for every percent that is in stocks and half a point for every percent that is in bonds. For instance, if 56 percent of your portfolio is in stock funds and 22 percent is in bonds, you would get a score of 56 for the stocks and 11 for the bonds, for a combined total of 67.
_ STEP 2: HOW DIVERSIFIED ARE YOUR STOCK FUNDS?
Deduct 10 points if your portfolio includes both foreign and U.S. stocks. If you don’t own any foreign stocks but you are diversified across the U.S. market, with a mix of large-company and small-company stocks, subtract five points. But don’t deduct any points if you have less than 30 percent of your total fund portfolio invested in stocks.
_ STEP 3: WHAT BONDS DO YOU OWN?
Subtract five points if you own high-quality bond funds that invest predominantly in short-term and intermediate-term securities. Also, deduct a separate five points if you own any sort of high-quality bond fund and you have diversified into either high-yield ``junk″ bonds or foreign bonds. But don’t subtract any points if you have less than 40 percent of your overall portfolio in bonds.
_ STEP 4: ARE YOU INVESTED IN HARD ASSETS?
Subtract five points if you own a fund specializing in energy, gold or real-estate securities.
_ STEP 5: HOW BIG ARE YOUR BETS?
Add 10 points if more than 40 percent of your portfolio is in small-company stock funds, aggressive-growth funds, foreign-stock funds, emerging-market stock funds, junkbond funds, foreign-bond funds, emerging-market debt funds and sector funds.
Add 20 points if more than 50 percent of your portfolio is in these risky funds.
_ How Did You Score?
After taking the quiz and adding up your score, use this guide to judge how risky your mutual-fund portfolio is.
_ 95 POINTS OR MORE: You’re an aggressive investor, which isn’t a bad thing, as long as you’ve got a long time horizon and a strong stomach for risk. But you could probably damp your portfolio’s gyrations, without sacrificing too much return, if you better diversified your stock portfolio and added a sliver of bonds.
_ 75 TO 94 POINTS: With your portfolio, you’ve got to be prepared for some wrenching short-term losses. But over periods of five years or longer, you should earn decent returns. Indeed, you’ve got just the sort of score that should be rung up by committed long-term investors, who are saving for their own retirement or their toddlers’ college education.
_ 50 TO 74 POINTS: With this sort of score, you’ve probably got a balanced portfolio that includes a decent mix of stocks and bonds. That’s not a bad strategy, if you’re a long-term investor with a conservative bent or a retiree who is comfortable taking some risk.
_ 25 TO 49 POINTS: If you plan to cash in your funds sometime in the next five to seven years, you’ve probably got the right sort of investment mix. Your time horizon is longer than that? Consider being a little more adventurous.
_ LESS THAN 25 POINTS: You may not realize it, but you’re taking a huge amount of risk. You’ve got a lot of your portfolio in bonds and money-market funds, which means there’s no way that you’ll lose a big chunk of your portfolio in tomorrow’s market crash. But there’s every chance you’ll wake up 20 years from now and find that inflation and taxes have been just as devastating. Only those who need their money in the next three or four years should score below 25 points.