Investors who are more risk-averse are more satisfied with a less risky investment asset allocation – regardless of lower expected investment returns or the related need to save more to achieve their lifetime financial plans. The reverse is true for investors with a greater tolerance for investment risk, since they can stomach greater market price swings without panicking. Historically, investment results for more risk tolerance investors have allowed them to achieve higher returns and to save at lower rates in pursuit of the same financial goals as more risk averse investors.

Nevertheless, all sane investors are risk averse to some degree, and that is what normally keeps current securities market prices down relative to expectations about future securities values. The key question is what kind of investor are you from an investment risk tolerance standpoint? This important answer is a direct driver of the asset allocation percentages of your personal portfolio. Your asset allocation percentages determine the greater or lesser degree of exposure that your personal investment portfolio has to investment risk and the opportunity for higher investment returns.

Trivial financial industry investment risk tolerance questionnaires often use just a couple of leading questions that quickly categorize you along some part of the range from “conservative investor” to “aggressive investor.” Sadly, these simplistic investment risk tolerance questionnaires are just a way for securities industry sales people to push you forward through a well-honed process of selling you overly expensive investment securities products that will drive up their sales commissions and bonuses and the profits of their financial services company employer. However, from the point-of-view of your best interests, it is very important to measure much more carefully your risk tolerance regarding the expected investment risk versus reward composition of your portfolio’s asset allocation percentages.

There is an inexpensive way for you to get a much better assessment of your risk tolerance than you would from a simple conservative versus aggressive financial industry investor questionnaire.

You can complete an investment risk tolerance assessment survey online, and you do not have to work with any financial industry intermediary or financial advisor to do so. Furthermore, by doing this investment risk tolerance analysis yourself, you can separate the process of assessing your investment risk tolerance from the financial industry’s product sales process. By doing so, you can give yourself the alternative of buying very low cost and broadly diversified index fund investments directly from low-cost mutual fund vendors. Industry intermediaries tend to sell only high cost investments that pay them high fees and/or high commissions. Often associated with high pressure securities sales efforts, these higher fees and commissions come out of your pocket and can really damage your long-term finances. You pay more and get less. Click here to learn about: Investment Fees

If you want to do an online survey to assess your personal investment risk tolerance, you can do so at MyRiskTolerance.com, which is a product of Finametrica. Their website explains it all, so I will not repeat their materials here.

Finametrica has a scientific process for the assessment of personal risk preferences. Their survey has some sound economic and social science behind it, plus they have a growing dataset of other survey respondents against which your responses are compared. This is one of the more tricky parts about personal risk preferences and setting an asset allocation strategy.

The objective of personal investment risk tolerance analysis is not just to measure one’s desire to avoid risk, because almost all people are risk averse investors. The goal of proper investment risk tolerance analysis is to assess your personal risk preferences against the backdrop of a representative sample of other investors.

Finametrica has a database of tens of thousands of other investors who have already completed the questionnaire from major developed, English speaking countries around the world, including the US, UK, Canada, New Zealand, and Australia (where they are based). (There also is a French Canadian risk tolerance questionnaire available.)

You should note that there is absolutely no business relationship of any kind between this MyFinancialFreedomPlan.com website and Finametrica’s MyRiskTolerance.com website. This not a paid review or recommendation of any kind, and this website will not receive compensation of any kind, if you decide to use Finametrica’s investment risk tolerance questionnaire.

Here is a durable link to this survey that we maintain on The Skilled Investor website: Investment Risk Analysis Just click this investment risk analysis link and you will be redirected to the investment risk tolerance survey on the MyRiskTolerance.com. When you get to the MyRiskTolerance.com website, read the page and then just click the link entitled “Click here to do your FinaMetrica Risk Profile online” near the bottom of the text in that page. If you want to learn more, follow the links in the blue horizontal bar that will lead you to other information on their website.

Here are a couple of hints as to how to do this online investment risk tolerance survey. If you decide to go ahead with the MyRiskTolerance.com questionnaire, remember to use an Internet Explorer browser, because the IE browser works with the WorldPay system that they use. The company is based in Australia, and they do not use PayPal. The survey costs $45 in US dollars for one or two people to use. (Obviously, Finametrica’s prices are subject to change without notice, and they set their own prices. Survey prices are different for other countries.)

If two people are going to complete the survey, then each person should fill out the survey separately and then compare results, after both have completed their investment risk survey independently. From a process standpoint, the first person orders and completes their survey, and then Finametrica will send a token via email for the second person to log in to the website and complete their survey. Remember to save off a printable copy of each person’s survey results to your home machine.

The personalized investment risk tolerance analysis profiles that you get after you complete the questionnaire are detailed and very informative. They explain your results and compare them to the responses of others who have completed the survey before you. When the particular answers that you give differ from the responses of other investors who have a similar investment risk tolerance profile to yours, these differences are explained to you.

With your personalized risk tolerance analysis, you can do a better job of determining your portfolio asset allocation percentages. Then, you can buy the needed low cost, broadly diversified, passively managed index funds to fill out the asset allocation of your portfolio directly from the lowest cost vendor or via a discount broker.

Assessing your investment risk tolerance is vital to developing a fully personalized plan for long-term financial success

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Without becoming a victim of identity theft, you can get a free credit report from each of the three credit reporting agencies once a year. Federal law requires the three major credit reporting agencies to provide these free reports annually. To satisfy their obligations, Equifax, Experian, and TransUnion jointly have established www.annualcreditreport.com, where you can order your free credit reports.

You can also call them at 1-877-322-8228 or write to them at Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. Because the material in your credit reports is usually largely redundant across these three companies, stagger your requests over the year and rotate between the three firms. If there is any problem with your credit report, it usually will show up on any of your reports from these three firms.

(Avoid using any of those obnoxious free credit report copycat companies, such as “freecreditreport.com,” that advertise on TV, but will only supply “free” credit reports, when you pay a lot for their other supposedly valuable premium services. Also, if you are a woman, you probably have already figured out these freecreditreport.com TV advertisers are not to be trusted. Incredibly cluelessly, their TV ads always blame the bride’s bad credit for young guitar playing slacker hubby having to work at a pirate themed fast food job. What a clueless company marketing department to insult the female half of their target audience with their advertising budget! Have they written off women because women shop and are too smart to pay for something that is supposed to be free? Free credit reporting my keister! This is another confirmation that the Federal Communications Commission is dead at the wheel with respect to consumer protections. Companies can get away with confusing people, screaming “free, free, free,” and then charging people for something that they have a legal right to get for free, if they just knew the correct web address.}

Identity Theft Events Provide Opportunities to Lock Down Reporting about Your Credit

While identity theft is a large and growing problem and can be very costly and inconvenient to you, it is just a business cost and headache to financial and retail firms, who also have benefited greatly from the proliferation of easy credit.

One way to protect yourself is to put restrictions on your credit records with the three major credit reporting agencies, Equifax, Experian, and TransUnion. These credit reporting companies have made profitable businesses on both sides. They charge fees to business firms who may not always treat your financial information carefully, and they charge you fees when you want to restrict access to your financial information in their data bases.

For some, these credit information access restriction fees go away when you become an identity theft victim. Whether or not you lose money, if you become a victim of identity theft, this may actually be an opportunity for some of you. In some states, like California, identity theft victims can get long-term locks put on their accounts without having to pay fees to the three credit bureaus.

California Residents Can Get a Free Fraud Alert for Seven Years Following Even a Minor Fraud Event

If you live in California and have become a victim of identity theft, you have rights under California law as an identity theft victim to have your credit files frozen for seven years without paying fees to the credit reporting agencies for such a long-term “fraud alert.” For example, if your credit card shows suspicious charges that you did not make and even if your credit card company takes them off your statement, you still can make an identity theft report to your local police and get a police report. With this police report and by writing to the appropriate addresses and following the procedures, the three credit reporting agencies are obligated legally to put long-term fraud alerts on your credit reports.

The downside of locking your credit report is that you cannot yourself apply and be approved immediately for instant credit. The good news is that nobody else can do the same for seven years, as well. (Note that if you do need to apply for a credit card or refinance a mortgage, you still can do so, but the credit lock on your account just creates a delay. You have to proactively contact the credit bureaus to inform them of the validity your efforts to apply for more credit.)

Lock Up Your Credit at the Credit Reporting Agencies

The upside to locking your credit report is that new attempts to establish credit in your name are blocked without your permission. Not only does that mean that criminals cannot open new credit cards in your name, it means that you have greater protection from other kinds of credit related crimes. For example, the credit crisis has spawned a crime wave of mortgage and real estate line of credit frauds.

Criminals have opened credit lines in home owners names and then have quickly drained the credit lines of their funds. In addition, homes have been sold without the home owners knowledge and sometimes the knowledge even of the “buyer” who also had his or her identity stolen and was an unwitting participant in the transaction.

Obviously, it is better to prevent costly situations like these than clean them up. In addition, pay close attention to any document sent to you by your county registrar. Because of increasing real estate fraud some county registrars, including Los Angeles County, now send notices to the address of record whenever any deed or other records change is filed with them.

<<<<< Go back to the previous part: Protect Your Financial Security

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Reduce the Chances of Mail Theft

Never leave any outgoing financial letters containing checks or sensitive information outside in public for the postman. To receive mail, you should have a mail drop slot rather than a mailbox on the outside of the house. Always mail your financial letters inside of a reliable US Post Office. Theft of checks in the mail – from outside your home happens more often than you may think. And, you are the one who suffers when your payment is not received in time; you credit rating gets dinged; your check is stolen, washed, and cashed; you lose your money; and you waste a huge amount of time puting your financial identity theft Humpty Dumpty back together again.

Stolen checks can be chemically washed to remove ink. To do this criminals tape over your signature on both sides, and then remove the tape. The end result is a blank check with your signature. To avoid check washing, you can purchase certain gel pens with ink that cannot be washed in this manner. Several vendors offer gel pens that claim not to be washable. You can research them on the web with Google. For example, Sanford distributes the Uniball Signo line of gel pens with gel ink that supposedly cannot be washed. These pens may be found in local stores.

Review ALL Bills and Financial Statements Promptly and Handle Significant Problems in Writing Within 60 Days

Review your credit card bills and other financial account statements carefully and respond to any problems promptly. Unfortunately, after 60 days the few consumer protections that are available to you under the Fair Credit Reporting Act will cease. Thereafter, you are at the mercy of the goodwill of banks and other financial institutions, which all too often is sorely lacking. Never count on the goodwill of any financial institution after 60 days has passed. This is particularly the case, with financial services companies that you cannot visit locally in person. Over the telephone, financial services companies — particularly credit card companies — have mastered the art of (usually) politely telling you that they are sorry, but there is nothing that can be done to fix a problem without, of course, it costing you a lot of money!

Check every financial statement that you receive in a timely manner and report any problems. If the dollar amount in question is significant, read the instructions on your statement or on the financial institution’s website about how to make a report in writing. Only when you follow these procedures in writing within 60 days are you protected under this law.

If you attempt to resolve a problem over the telephone, take careful notes including who, when, and what was stated, etc. Nevertheless, telephone conversations do not protect your legal rights, so when the amounts in question are significant to you, you must put it in writing.

Dispose of Financial Records Properly

Be careful in disposing of all financial records and statements. Do not simply discard them in the trash or recycling. Use a crosscut shredder, which makes small confetti and not strips. Alternatively, you can keep a bag of discarded financial records, which you burn periodically. These financial records disposal recommendations also apply to preprinted credit card and other debt applications that you might receive in the mail. Do not throw these applications in the trash without first tearing off your name and address from the application.

<<<<< Go back to the previous part: Financial Planning and Identity Theft Prevention

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You should take the potential for financial identity theft very seriously, as a threat to your financial security. Identity theft can sometimes entail loss of your financial assets, whether small or large. However, very often it requires taking a very large amount of your time to rectify an identity theft breach. Given the interconnectedness of the personal asset and personal credit system, any breech of your financial identity can have very time consuming ramifications, and the value of your time can many times exceed the value of the money that might have been stolen from you or from some firm through your stolen identity. Furthermore, once your identity is “out on the black market” you are more vulnerable to subsequent attacks. Taking certain steps to prevent an occurrence of identity theft in the first place is prudent. This is why identity theft prevention is a key, but often overlooked, component of a prudent financial plan.

Protection Practices for Sensitive Information and Passwords on Banking, Mutual Fund, Investment, and other Financial Websites

As you set up Internet accessible financial accounts, be very careful with your financial information. Furthermore, as you utilize the Internet it is important that you use what are known as “strong” passwords with more characters (combinations of letters, numbers, special symbols, upper and lower cases). Vary your passwords from one account to another. Never use the same password across your important financial sites. It is much better to maintain list of different passwords that you carefully protect at home, rather than to use a single weak or even strong password across various financial websites. Furthermore, it is a good practice to vary your user name from one account to another. In effect, different user names and different passwords in combination make your identity on any single site much more secure.

Therefore, it is recommended by security authorites that all your financial passwords for your on-line accounts be both strong and different. Many identity thieves are clever and sophisticated. Furthermore, there is a cyber underground and internet black market where compromised identity information is shared, bought, and sold. This cyber crime underground stretches around the world. When your user names and passwords are both strong and different, you could avoid a single identity breach from cascading across your other financial accounts.

Avoid using more sensitive information, such as mother’s maiden name or your city/state/date of birth, for example, as your answer to security challenge questions on any ordinary, non-financial website.  Reserve this information only for those sites that hold your financial accounts and your financially sensitive information. Simply assume that the vast majority of websites have absolute amateurs in charge of their website systems architecture and security. While this may not be true of any given website that attempts to collect sensitive information from you, assuming that the site security is poor is a wiser assumption, because you never know which site could be the weak link. Systems administrators of financial web sites tend to be much more sophisticated concerning security affairs, but they certainly are not infallible. Furthermore, all it takes is one corrupt employee at firm with strong or weak web systems security, to circumvent any protections that are in place.

Deal with Financial Services Company and Non-Financial Websites

With less important and non-financial web sites that require registration, you could use the same username and the same easily remembered strong password. However, it would be very wise never provide these sites with any additional information that is accurate about your name, address, phones, the security challenge answers above and other potentially sensitive information. Always assume that security on any of these “unimportant” web sites could be breached and that your password information could be used to access other accounts elsewhere. By drawing a strong distinction between the user names and passwords that you use on financial and other sites that are important to you versus those unimportant sites requiring registration information, you can in part firewall yourself from security breaches in the less well managed part of the Internet. Why supply via perhaps a forum registration to some hobby web site your actual name, address, etc. And, certainly do not supply your date of birth or mother’s maiden name as the answer to the security challenge questions. If that forum website’s membership database is breached you will have supplied key information needed to breach the financial accounts that are really important to you.

Access to your personal email system or systems should require a strong and different password. Stored email messages can contain passwords for which a thief could search. Furthermore, on your home computer systems, you should always have a fully functioning firewall and up-to-date anti-virus/anti-spyware software that is always on.

Take these issues seriously. Cyber crime is worldwide, cooperative, and increasing sophisticated. Since it is highly profitable and risks of criminal prosecution are low, do you think this problem is going to go away. The prudent thing to do is to keep identity theft away from your door, if you can.

Avoid Phishing and Other Impersonation Attacks

Avoid phishing of all kinds. For example, never provide any personal data of any kind in response to a link provided to you via email. Always ensure that the URL of the site you are using is the correct URL. If you are ever in doubt, type in the URL yourself or search for the site on Google and then enter the site with the link from Google.

Furthermore, never enter any financial information or other sensitive information into any website that does not use the secure “https” protocol (note the “s” added to “http”). When buying over the Internet with a credit card or otherwise, if a site does not use https, do not use it. Use only one credit card when buying on the web. If that credit card is compromised, you can close that credit account number and replace the card.

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