What’s your financial risk profile?

Results from the Ameriprise Financial Risks & Investor Attitudes study.

  • When it comes to financial decisions, most people choose to avoid risk rather than manage it.
  • The more informed people feel about financial topics, the more willing they are to take prudent financial risks.
  • Working with an Ameriprise financial advisor can help people make more informed decisions aligned with their risk tolerance in order to reach long term goals.

How do you react to financial risk? What drives you to embrace or avoid it? Do you label some investments as risky and do them anyway? Those are some of the questions Ameriprise Financial set out to answer in its recent Financial Risks & Investor Attitudes study.

Risk profiles

The survey found that investors tend to display one of four risk-related personality styles.

  1. Risk Avoiders — 31% of the investor population
  2. Risk Mitigators — 42% of the investor population
  3. Risk Managers — 25% of the investor population
  4. Risk Embracers — 3% of the investor population

The Financial Risk Spectrum

The Financial Risk Spectrum

Risk Avoiders

Key characteristics:

  • Nearly 90% say they are “cautious,” and many will pull funds out of a volatile market or invest only where returns seem guaranteed, no matter how small.
  • They view financial risk as “loss” (31%) or “uncertainty” (67%), rather than opportunity.
  • 58% are less likely than other people they know to make an investment for a high potential return at a high level of risk.

Key takeaways:

Risk Avoiders’ behavior can actually expose them to a larger risk: a lack of sufficient retirement funds. Indeed, only 24% feel confident they are saving enough for retirement.

Another key finding: 73% of Risk Avoiders lack financial plans, something that can be particularly important for them. A detailed plan can help ensure they are on track for retirement — and help alleviate some financial risks their approach has inadvertently created.

Risk Mitigators

Key characteristics:

  • 64% regret losing money on the stock market more than missing an opportunity to gain.
  • 89% would take a financial risk, but only after “adequate research.”
  • 63% diversify their portfolios in order to reduce their risk.

Key takeaways:

“Members of this group take steps to lessen risk, but remain uncertain in their approach toward managing risk,” says Marcy Keckler, CRPC®, CFP®, vice president, Advice Strategy & Programs for Ameriprise. “For example, focusing only on investments with a guaranteed return or shifting to conservative investments during a volatile market can be triggered by doubt. Working with an advisor who weighs all aspects of their financial situation — beyond just investments — can help alleviate some of those concerns.”

Risk Managers

Key characteristics:

  • They tend to see risk as “opportunity” — 55% would regret missing an investment opportunity.
  • 67% research financial decisions in order to reduce their financial risk.
  • They’re likely to know how their 401(k) plan is invested, its rate of return and its exact value.

Key takeaways:

“Risk Managers tend to take the driver’s seat when it comes to their finances, which makes it easy to understand their level of confidence,” says Keckler. “In fact, an overwhelming majority are highly confident they are saving enough for retirement.”

“Also, more than half of them talk to their advisors about investment risks,” Keckler adds. “That can be extremely helpful, both in understanding risk exposure and in developing retirement plans positioned for long-term growth.”

Risk Embracers

Key characteristics:

  • Nearly 40% associate taking a financial risk with “excitement.”
  • Three out of four are more likely than others to take on a high-risk investment if it has potential for a high return.
  • They are less likely to research financial opportunities than Risk Managers or Risk Mitigators, and they’re the least likely of the groups to have a diversified portfolio.

Key takeaways:

Risk Embracers aren’t entirely reckless. Of the four profiles, they’re most likely to have a financial advisor (59%) and to purchase long-term care (LTC) insurance. But they can also expose themselves to risk. For example, 28% don’t use financial advisors, and 16% are likely to overpay for their homes. A financial professional could help ensure their plans balance risk and reward.

Learning before you leap

“Given the recent market volatility, it’s not hard to see why some people are cautious when it comes to perceived risks,” says Keckler. “Still, it’s important to note that any investment involves some level of risk. The key is to arm yourself with knowledge to help you make informed decisions.”

An Ameriprise financial advisor can help you understand your unique tolerance for risk and work with you to create a plan that works for you.

These results are from the Financial Risk study, an online survey commissioned by Ameriprise Financial of 3,000 Americans conducted between June 16 and July 3, 2015. All respondents were between ages 25 and 70 and had at least $25,000 in investable assets. Some may have retired from their primary career, but remain in the workforce.

The sample was distributed across generational group and gender as follows:

  • 999 millennials (ages 25-34)
  • 1,000 Gen Xers (ages 35-50)
  • 1,001 boomers (ages 51-65)
  • 50/50 male/female split