Research begins for personal financial planning department based on Investment Risk Tolerance Assessment

Created in 1999, the free assessment determines a person’s willingness to take financial risks based on a 13-question survey.
The possible risk scores offered by the Investment Risk Tolerance Assessment.

MU recently acquired an Investment Risk Tolerance Assessment from Rutgers University, which allows individuals to test their willingness to take financial risks.

On Jan. 8, the MU personal financial planning department put the assessment on its website and the faculty began collecting data. The test was created by John Grable, professor of family and consumer sciences at University of Georgia, and Ruth Lytton, professor of financial planning at Virginia Tech, in 1999. This test was one of the first of its kind and is free for all users.

The Investment Risk Tolerance Assessment was acquired by Rutgers after its creation, where researchers have been able to use the data to understand different financial demographics. MU gained the assessment via an institutional transfer after Rutgers was no longer interested in housing it, according to Abed Rabbani, assistant professor of personal financial planning at MU.

A person’s investment risk tolerance is determined by their preference for taking risks, their perception of risk and what that person has done financially in the past, according to Grable. The assessment includes multiple choice questions about how a friend might describe the test-taker, their preferred gambling odds and how one would invest their money.

Rabbani was part of the group that expressed interest in acquiring the risk assessment in the summer of 2017. Rabbani said the test is “immensely popular” in the financial planning and advising businesses.

The risk tolerance assessment originally included 100 questions, which have been gradually cut to 13 since 1999. Rabbani said the test will continue to be a work in progress. Since MU’s acquisition of the test, there have been over 11,000 assessments completed, as of Feb. 22. Overall, the assessment has accrued over 200,000 hits since its creation.

Researchers from MU, Rutgers University and the University of Georgia are currently evaluating data gathered by the risk assessment tool from 2012-2017. Rabbani said the group plans to give the findings to MU Extension programs, which will disseminate the information to other financial planners and consumers.

“We are working together to increase our audience,” Rabbani said. “We are approaching Extension educators to make them aware that there is a tool that they can utilize when they speak with their Extension clients.”

Because MU is a land-grant university, it holds a “federally mandated mission to carry the benefits of university research” outside of campus, according to the MU Extension website. The research from the assessment data will be given to the financial sectors within 69 MU Extension program locations.

Grable said the investment test can be used by consumers to identify how they may handle risk in different situations in relation to other people when presented with the same financial choices.

“Hopefully what [the Financial Risk Tolerance Assessment] helps somebody do is at least get an idea of where they fall on a continuum from being really risk averse to being a risk seeker,” Grable said. “The hope is that if you’re ever presented with an investment recommendation, [the assessment] helps people gauge where they are in comparison to others.”

Edited by Morgan Smith |

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