Are you a risk-taker? Take our test and see your investment options

Craig Rickman is a personal finance expert at Interactive Investor.

When it comes to investing, knowing your risk appetite is more than just a consideration – it’s the foundation of a sound financial strategy.

Every investment carries a level of uncertainty, and your ability to navigate any fluctuations in the market will depend on how well you understand what’s called your “personal risk appetite”. Put simply, it’s how comfortable you are with your investments potentially losing a lot of their value during turbulent times, and whether a high level of discomfort is going to lead you to make hasty decisions that could be bad for your money.

Your risk appetite might be influenced by your age and financial circumstances. A younger person in a comfortable financial position may be far more laid back about market volatility than a pensioner who has earmarked the money to be used in retirement.

By assessing your risk profile, you can build an investment portfolio that balances growth opportunities with the ups and downs that you’re willing and able to stomach.

This short quiz features some of the questions you should be asking yourself before you start investing to identify your risk appetite, and the actions you should take once you know what kind of investor you are.

For daily stockpicking advice, read The Telegraph’s Questor column, which offers insights on where to invest and how to decode the markets.

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Other considerations

Your risk appetite may be more nuanced than the definitions outlined in your results. For example, you might consider yourself a “high risk” investor, but would prefer to take a more cautious approach with some of your portfolio – this could be the case if you have financial goals with shorter timeframes.

While gilts and bonds don’t usually rival the stock market when it comes to outsized returns, they are a good option to consider when diversifying your investment portfolio, as they offer a more reliable and steadier source of income to counterbalance more adventurous investments.

Another thing to factor in – and something that runs adjacent to risk appetite – is your capacity to bear investment losses.

What this means is that, while you might be happy with the possibility of losing lots of money, you must be able to afford to.