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The risk test

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Fear and investing can be like oil and water. Shake ‘em, turn ‘em over and under, bring ‘em to a boil, and you’ll still have oil and water—apart—in the end. Most Filipinos are extremely risk-averse. That’s why we like PDIC’s deposit insurance. That’s why we have most of our money in time deposits or special deposit accounts growing at a snail’s pace. That’s why most of our grandparents hid money in bauls. Some personal finance books and experts say, at some point, we have to learn to accept some risk especially if we want our money to grow in the long-term. But with the scary events of recent months, who’s going to think embracing risk will be a walk in the park? I read an article by Val Araneta in the latest issue of the Financial Executives of the Philippines (FINEX) magazine which is very informative. It’s not meant as an entertaining piece, but what he says is important:  knowing and understanding possible risks is a huge part of managing personal investments. Take the following test based on his article to see if you know the kinds of risks that you face when you save and invest. 1.    Default risk refers to the kind of risk that… a.    means risk by default. b.    means you won’t get paid. c.    is de fault of the borrower. d.    None of the above. 2.    Business risk is a type of default risk that… a.    has to do with the business going pfft. b.    can affect both business owners of companies or investors in listed companies. c.    is very important for those who expect to finance their children’s education with stock investments. d.    all of the above. 3.    Credit risk is another type of default risk which… a.    can only affect a corporation and not an individual. b.    can affect only individuals and not corporations. c.    can affect both corporations and individuals. d.    can affect only the government. 4.    Notes that are not secured are naturally riskier than those that are secured. “Secured” here means… a.    collateralized. b.    placed in a safety deposit box. c.    backed up by legal documents. d.    it is insured. 5.    The riskier and the longer the tenor of a debt security, the higher would be the expected return for the holder. a.    True b.    False 6.    Sovereign risk has to do with… a.    the country where you invest. b.    the possibility that a country or the companies in that country will not honor its or their debts. c.    can affect holders of government bonds d.    all of the above 7.    Cross border risk… a.    has become a major consideration now because of the globalization of investments and the lower costs of transaction of these global investments. b.    should be a lookout of every Filipino who invest in different countries c.    happens when a government imposes a ban on foreign currency flows from its country. d.    All of the above. 8.    Filipinos are afraid of price risk because we… a.    like to make sure our investments are guaranteed. b.    don’t have the financial education necessary to track the factors that affect it like economic fundamentals, the fortunes of companies, interest rates, etc. c.    are afraid of fluctuations and want our savings and investments to be always accessible for withdrawals. d.    All of the above. 9.    Liquidity risk is a major problem now in the US financial market because… a.    of the greenhouse effect on Wall Street. b.    it has stopped raining in Los Angeles. c.    home buyers in the US who can’t pay their mortgages cannot sell their homes at values that will allow them to pay their debts. d.    A and B. 10.    Filipinos are vulnerable to the risk of frauds and scams because… a.    They chase after returns b.    They follow their best friend/relative/PTA member’s ‘expert’ advice and don’t research on their own. c.    Don’t have financial education. d.    All of the above. 11.    The worst kind of risk in personal finance is the risk of inaction because… a.    inflation and currency movements can eat into everyone’s savings. b.    jobs and health can disappear without warning. c.    The gap between retirement and life expectancy keeps growing d.    all of the above. Click this link for the answers. 9-11 -- you're the risk guru of sorts! 5-9 -- you still have to do some legwork but you're ok. 0-4 -- read more before you invest!

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9 Comments

Hi Ms. Duplito,

I've discovered this blog recently and since then I've been hooked. I don't know a lot about investing and stuff but by reading posts, topics discussed and comments from readers from this blog but I learn a lot. I even shared the link to this blog to a friend because I think education on personal finance is very important. Please continue to discuss topics on UITF, money market and other forms of investments (time deposit etc..). I'm still at a "start up" phase at 31 and would want to save fast for my future. Thank you and more power.

hi mayeni, thank you for your kind words. You might want to take advantage of the category listing to help you look for topics you're interested in. UITFs, money maarket and other forms of investments are a common interest here. I will try to write more about them. Have a great weekend!

I got 10! I got #5 wrong

I got 1 mistake - number 7.

Thanks very much Ms. Duplito :o) Looking forward to reading more posts :o) Enjoy the rest of the week!

Ah yes!

Thank you very much Salve for all the wonderful articles you posted

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I wonder why this article does not have much responses? are pinoys risk-averse? to the point of not entertaining this post :P

I got 9 out of 11! I got 2 and 7 wrong! Thanks for this test Salve.

@nina, zadkiel and millionaire acts, puro pala kayo risk guru eh :-). great going!

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