If You Don’t Already Know It, You’ll Discover It Here
Executive Summary: Knowing your true risk tolerance, or what we more broadly define as your personal Peace of Mind Quotient (POMQ), is vital to effectively directing your savings and investing strategies throughout the course of your life.
Really, until you get a handle on the emotional price you are willing to pay in pursuit of higher financial returns, you have no business chasing wealth.
People who fail to take their POMQ into account when developing their savings and investment strategies very often pay an exorbitant and unnecessarily high emotional penalty for their shortsightedness. Here we provide you with a fun and thought-provoking Peace of Mind Quotient Self-Assessment and encourage you to take five minutes or less to discover your score.
The conventional wisdom is that “peace of mind” is priceless.
All of us have some level at which we are willing to tolerate stress, discomfort, worry, anxiety or other unpleasant feelings if the potential financial rewards are large enough.
Think of the popular NBC television show, Minute To Win It. Contestants – ordinary folks with no special skills or athleticism – compete in up to ten consecutive 60-second challenges using common household items.
As the winnings mount, each challenge becomes progressively more difficult. The suspense builds over the contestants’ fateful choice to pocket the cash they’ve already won or continue in pursuit of the ultimate prize of $1 million. If at any step along the way they falter, the game is over and they must forfeit their earlier winnings.
Would you risk 60 seconds of intense stress and many thousands of dollars of existing gains for a shot at $1 million?
The analogy is not perfect, given that the game show contestants will make or break their fortune during a one-hour program, with time out for commercials.
Yet consider how many Americans – perhaps including you – play a real-life version of Minute To Win It on a regular basis? With no particular training or financial athleticism, they hope to springboard their investments in stocks and mutual funds into a much larger portfolio, while risking all their previous gains and much of their principal.
More than 400 years ago, in Hamlet, William Shakespeare declared, “This above all else: To thine own self be true.”
Yet, most individual investors never are.
Each time the stock, real estate, commodities or precious metals markets convulse, millions of Americans realize they haven’t been honest with themselves. Like a hard slap across the face, they are awakened to the stinging realization that they’ve willingly opened their lives to a whirlwind of emotional turmoil in exchange for a perceived chance at greater wealth.
Money is supposed to bring us peace of mind – not rob us of it…
That is why knowing your true risk tolerance, or what we more broadly define as your personal Peace of Mind Quotient (POMQ), is vital to effectively directing your savings and investing strategies throughout the course of your life.
Really, until you get a handle on the emotional price you are willing to pay in pursuit of the highest financial returns, you have no business chasing wealth.
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People who fail to take their POMQ into account when developing their savings and investment strategies very often pay an exorbitant and unnecessarily high emotional penalty for their shortsightedness.
Even if they one day walk away a “60-second” millionaire – and please know that most people never will hit the jackpot – do they look back and judge that it was worth the almost inevitable damage to their health, family relationships and quality of life along the volatile road to success?
At least if stress and anxiety somehow increased one’s likelihood of success, accepting such discomforts might be more justified. Ironically, however, often those investors who go the farthest out on a financial limb, get pummeled with the double whammy of a huge financial fall and utter peace-of-mind bankruptcy.
As soon as the money is gone and hope evaporates, regret and self-recrimination move in for a long stay.
How much of your possible investment return are you willing to set aside to insure peace of mind? Ten percent? Fifty percent? One-hundred percent?
How much of your serenity, comfort, composure, lifestyle and sleep, are you willing to sacrifice to generate a larger net worth – or, more precisely, the prospect of a greater net worth?
Here’s a quick test of your overall personal Peace of Mind Quotient…
Answer the following questions as candidly as possible:
- If you were in Las Vegas right now, would you be comfortable wagering $1,000 on the likelihood that the spinning roulette wheel will come to a halt on a red number? The chances of that happening are just under 50-50. If you’re correct, you’ll double your money.
- Would it alter your decision if the amount in play is only $10? How about if it is $10,000?
The odds, of course, remain the same regardless of the size of your wager.
How about staking some serious money on the possibility of landing on one specific number at the roulette table?
Are you more inclined – or less inclined – to bet the same $1,000 on hitting a single number knowing that the odds of winning are less than 3 in 100, but the payout if you do win would be $35,000?
Will you make that bet?
Among the many thousand readers of this article, we can say with certainty that there are some people who’ll reply “yes” outright; more who’ll say “yes” with conditions – such as better odds or a smaller wager; and many who’ll reply “not a chance, I don’t gamble.”
There is no absolute correct or incorrect answer.
Whatever choice you make, as long as you’re being honest with yourself and you can afford it both financially and emotionally, is correct for you.
Circumstances, of course, may weigh heavily on the ultimate wisdom of your actions. If you are a multi-millionaire earning thousands of dollars a day in interest alone, then risking and losing $1,000 in Vegas likely won’t have much emotional or financial impact.
On the other hand, if that $1,000 represents your family’s grocery money for the month – and you lose it on one spin of the wheel – chances are you’ll suffer mightily for your gamble.
How to find out your own Peace of Mind Quotient
Accompanying this article is an entertaining and insightful Peace of Mind Quotient Self Assessment. Answering this multiple-choice questionnaire will take you less than five minutes, but will undoubtedly leave you thinking about your investing style for hours, days and perhaps even months to come.
That is exactly what this self-assessment is intended to do: Bring forth your true attitudes about Peace of Mind and its value to you.
Asking yourself these questions and gauging your answers will definitely help you understand your individual POMQ – and hence, allow you to be a more successful investor. That is, if you define “success” as a blend of return on your money and the quality of life you enjoy while earning it.
In designing and refining this self-assessment, we found it surprisingly enjoyable to ask our family members and friends to also answer the questions and then meet to exchange and discuss our results.
Funny how you never know what even your closest family members think unless you bother to ask.
When you do complete our self-assessment, we’ll provide you a generalized evaluation of your POMQ and our recommendation of how it might be used to influence your savings and investment decisions moving forward.
Note that we specify this is a generalized evaluation. Without knowing more about you, your specific circumstances, and other important aspects of your life, your POMQ score and our suggestions should only serve as one of the factors you rely upon when making real-life financial decisions.
Take the POMQ Self Assessment right now (remember it is brief and thought-provoking).
If you don’t actually want to take the assessment, but would like to see the POMQ categories and recommendations that we’ve established, you can do that here.
Because we all change over time, your POMQ is not a permanent score. It may change as your circumstances do – and so we plan to remind you periodically to retake the assessment.
Gaining fresh insights about who you are and why you invest the way you do is always a worthwhile exercise.
It’s never a bad time to get to know yourself better!