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Futures Trading Tip: Investment Mindset Indicator

Knowing your investment mindset score before trading futures or commodities helps you understand your personal tolerance towards risk.

While your personality plays a vital position to determine your lifestyle as well as your decision on how you go about in life, how you develop and fine tune your mindset when faced with risks is what matters. Top investors know this and adopt it as a rule of thumb. It is one of the reasons their investment portfolio grows during economic boom as well as downtime.

Your investment mindset will project the direction to your behavior in your distribution of wealth and money across different investment portfolios. Similarly, your investment mindset will project the direction to your behavior in your distribution of wealth and money across different investment portfolios. This will also affect your expectations of your time frame on your return on investments.

There is a saying that trading is about controlling two aspects – greed and fear. Thus knowing the type of investor you are will help you to establish the best ways for your approach to the market and to set boundaries for your reaction towards market volatility.

To find out how you score, answer questions below. There are points allocated after every answer. What you need do is to sum up all the points and refer to the answers below for the type of investment personality indicated.

Section 1: Investment Objectives

  • My expenditure is dependent on the return on investments as a source of income to complement my current income. (1 Point)
  • There is no need for current income, but returns on investments are much preferred. (3 Points)
  • I am not troubled for income from investments though there is a need to accumulate wealth for the future. (5 Points)

Section 2: Risk Tolerance

  • I am adverse to fluctuation of the value of my investment portfolio and would prefer the value to remain steady. (0 Points)
  • I can tolerate movements in my portfolio’s value but I generally don’t take risk. (3 Points)
  • I foresee that there is some benefit to taking some risk especially to for long-term investments, thus I am prepared to be tolerant even in a market slump. (5 Points)
  • I am definitely a risk taker and can tolerate the significant swings in my investment portfolio even if the losses are substantial. (15 Points)

Section 3: Timeframe

When do you see yourself achieving your investment goals?

  • Less than a year (1 Point)
  • 1 – 5 years (3 Points)
  • 5 -10 years (5 Points)
  • More than 10 years (10 Points)

To calculate your total points, add up the subtotals for all three sections (Objectives, Risk Tolerance and Time Frame).

Investment Mindset Indicator

If your total points is between 2 to 12

Risk Adverse. You are not mentally prepared to take risk. You are most comfortable with investments that provide a steady value and a stable income. Investments that cannot be liquidated immediately are avoided. Investments for this personality include short-term bonds, mutual funds with mindset for rising dividend income.

If your total points is between 10 to 20

Levelheaded Investor. There is a general higher tolerance compared to the risk adverse investment personality. Generally, you are comfortable with longer-term returns. Investors of this category will find investing in stocks favorable.

If your total points is between 18 to 30

Risk Taker. Investors of this category are willing to trade a high degree of risk for greater returns. Investors of this category basically seek instruments that have higher returns apart from stocks such as derivatives such as futures, option or commodities.

Once you know the indication, you can find out more about investing in financial products that best suit your need. You may want to avoid financial products which you are not risk tolerant to.

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