1. Portfolio Gain and Loss:
If you had $20,000 to invest for a 10 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.
2. Portfolio Declines:
Let's say your total education savings portfolio declines in value by 15% in one year. When you selected this portfolio, you believed it was the most appropriate for your education funding needs. Which of the following are you more likely to do?
A. Change the Portfolio. If a portfolio goes down 15%, it's obviously too risky for me. This would keep me awake at night.
B. Stay the Course. I have a long-term perspective for my college funding assets. I understand that my portfolio can decline in the short term, but I'm willing to accept these short term losses if that's what it takes to earn a potentially higher long-term rate of return.
3. 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.
4. Staying Power:
Your ability to take risk is partially a function of your investment time frame, so it's important to know if external factors might cause you to terminate your program prematurely. How likely is it that you will be able to keep all your contributions in the plan until the student begins college?
A. Unlikely. I can think of a number of reasons why I might not maintain the plan for the full period contemplated.
B. Somewhat doubtful. I can envision certain situations where I would need to take money out of the plan early.
C. Very likely. I have adequate insurance coverage and emergency funds set aside, so it is unlikely I would need to terminate the program prematurely.
5. 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 (declines in value) within a comfortable range, and then to accept whatever results this 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.
6. 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 that would have to be repaid soon after graduation.
7. 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 each year.
8. Investment Fluctuation
Generally, I prefer investments with little or no fluctuation in value, and I am willing to accept the lower returns associated with these investments.
A. I strongly agree
B. I agree
C. I disagree
D. I strongly disagree