MANAGING YOUR MONEY : The Heart of a Gambler

“Frankly,” says Peter Lynch, the investment guru recently retired from guiding Fidelity Magellan, the nation’s biggest mutual fund, “there is no way to separate investing from gambling.”

Nevertheless, there are many different ways to gamble. Just because you think it’s a hoot to buy a lottery ticket once a week doesn’t mean you have the stomach to sit down at the poker table with Amarillo Slim. Likewise, the fact that your neighbor moved to Bel Air after borrowing against her life insurance to invest in oil wells doesn’t mean that you have to play such a high-stakes game.

No question: you’ve got to know when to hold ‘em, know when to fold ‘em. But you’ve also got to know whether you want to be dealt in at all. This quiz can help you determine how much investment risk you’re prepared to bear, bear market or bull.

Answer the following questions, loosely based on risk assessments devised by Fidelity Investments, IDS Financial Services Inc., LFS Benefit Services, the Heaphy Trust Group and Donoghue’s Moneyletter. A scoring key follows.

1. How old are you?

a. Under 35.

b. 35 to 49.

c. 50 to 64.

d. Over 65.

2. When making investment choices, I am most concerned about...

a. Keeping even with inflation.

b. Getting rich quick.

c. Not losing my shirt.

d. Adding to my wealth so I can afford more of the things I need or want.

3. When the financial markets become erratic, I...

a. Put all my money into a savings account so I don’t have to worry about it. b. Just don’t understand what is happening.

c. Watch knowingly, aware that what goes down must come up, and vice versa.

d. Figure there are opportunities in the making. After all, you can’t get rich without taking chances.

4. When the stock market crashed in October, 1987, I...

a. Sold my stocks and mutual funds and vowed never again to put my money in anything more risky than a candy machine.

b. Took my broker’s advice and started buying.

c. Was unaffected; I don’t invest in the market.

d. Was paralyzed by fear, did nothing, and saw most of my investments eventually recover.

5. I borrow money...

a. Only to buy a car or home.

b. To invest in deals that seem likely to make the money grow.

c. Never.

6. My buddy Jack wants me to join him on a road trip to Las Vegas. My wife and I had planned to use the $800 we’d saved to buy a new couch. I...

a. Decide with my wife to risk $200 at the tables in hopes we’ll be able to buy a nicer couch than we’d planned.

b. Thank Jack for the invitation but explain that I have no money to spare.

c. Empty the back account, figuring I’ll be able to redo the whole living room with my casino winnings.

7. On Feb. 1, I bought a mutual fund at $20 per share after it had been recommended by Forbes, Business Week, Louis Rukeyser and my rich uncle. On March 1, the fund was selling for $15 a share. I...

a. Cancelled my magazine subscriptions, sent a black rose to my uncle and sold the shares at a 25% loss.

b. Asked my uncle to hold my hand while I waited for the fund to rebound.

c. Bought more. If the fund was a good deal at $20, it was that much better at $15.

8. My neighbor Arnie, a software engineer, says his company’s new spread-sheet program makes Lotus 1-2-3 look like the Rosetta Stone. He’s buying as much stock as he can and says I should, too. I invest:

a. Nothing. Everybody touts his employer’s stock.

b. One month’s salary. Nothing ventured, nothing gained.

c. Three months’ salary. You can never get enough of a good thing.

d. Five months’ salary. If Arnie’s going to be able to put a pool in his backyard, I am, too.

9. I’ve lost $500 playing roulette in Vegas. To win it back, I’m prepared to wager...

a. $1,000. I’m feeling lucky.

b. $500. I at least have to cover my losses.

c. $100. Small steps first, big steps later.

d. Nothing. This obviously isn’t my night.

10. My company has just established a new savings plan, promising to match my payroll deductions up to 5% of my salary. I...

a. Don’t sign up, because a few dollars a week will never add up to much.

b. Sign up for the maximum deduction, figuring that the worst I can do is double my money.

c. Request information on how my money will be invested, so I can determine if I can better invest the same amount elsewhere.

11. Little Tillie, our first child, has just been born, and we want her to be the first member of the family to attend USC. Knowing how much this will cost, we take the cash gifts she receives and buy...

a. Shares in an aggressively managed growth mutual fund. The market may bounce up and down, but she’s bound to be way ahead in 18 years.

b. Savings bonds. A sure thing is the only place for Tillie’s college fund.

c. Shares in a traditional growth-and-income mutual fund. We wat the money to appreciate, but not with a lot of risk.

d. Items Tillie needs immediately, such as clothes and toys. We can start saving next month.

12. The head of the President’s Council of Economic Advisers says interest rates could go up in the next few months, though the signs aren’t clear. I am just about ready to buy a house, but even at current rates, I can barely afford the mortgage on the home of my dreams. I...

a. Buy now, with an adjustible-rate mortgage. The lower initial rate allows me to qualify, and if the payments go up next year, I can worry about it then.

b. Start looking for a less expensive home.

c. Wait and see what happens to interest rates. I really want to buy a house, but I don’t like to act when the signs are so unclear.

d. Buy now, locking in the best fixed rate possible.

13. Aunt Esther left me $50,000 in her will. I...

a. Invest in my counsin’s start-up biotech company; this is my only chance to strike it rich.

b. Put it in my passbook account; the world is an unpredictable place.

c. Use her bequest as the down payment on a new house; real estate is a solid investment with tax advantages.

d. Invest in blue-chip stocks; I’d like to see this money grow, but I don’t want to do anything too risky.

14. Payday is not until next week, and I have $25 in my wallet. But the display in the candy store window is awfully tempting. I...

a. Walk in and buy a 1/2-pound box of truffles. How could I resist?

b. Promise myself that I will come back after payday and buy myself a treat.

c. Stride purposefully down the street, reminding myself that I’ve been too indulgent lately.

15. My tax refund has arrived, and it’s a big one. I...

a. Make an extra principal payment on my home mortgage.

b. Consult a financial planner.

c. Book a cruise.

d. Must have added incorrectly on my return.

SCORING

Add up your score using the key below:

1. a.) 1 b.) 4 c.) 3 d.) 2

2. a.) 2 b.) 4 c.) 1 d.) 3

3. a.) 2 b.) 1 c.) 3 d.) 4

4. a.) 2 b.) 4 c.) 1 d.) 3

5. a.) 3 b.) 4 c.) 2

6. a.) 3 b.) 2 c.) 4

7. a.) 2 b.) 3 c.) 4

8. a.) 1 b.) 2 c.) 3 d.) 4

9. a.) 4 b.) 3 c.) 2 d.) 1

10. a.) 1 b.) 4 c.) 3

11. a.) 4 b.) 2 c.) 3 d.) 1

12. a.) 4 b.) 1 c.) 3 d.) 2

13. a.) 4 b.) 1 c.) 3 d.) 2

14. a.) 4 b.) 3 c.) 2

15. a.) 2 b.) 3 c.) 4 d.) 1

0-25 points: You don’t know a bond from a bongo. Before you can even begin to assess your willingness to take risks with your money, you need to educate yourself about investing options. Visit the public library and pick up “Marshall Loeb’s 1990 Money Guide,” “Kiplinger’s Make Your Money Grow” or the “Complete Guide to Managing Your Money” from Consumer Reports Books.

26-35 points: You are extremely averse to risk. You will want to put your money where it is safest: in certificates of deposit, money market funds, bond mutual funds or growth and income mutual funds. Your money won’t grow very quickly in up markets, but you’ll be reassured by the knowledge that, ultimately, the tortoise outlasted the hare.

36-49 points: You are an astute investor who weighs risks and rewards and seeks to maximize your gain without taking unwarranted gambles. You will want to diversify your investment portfolio with stocks, bonds, mutual funds and a cash position. You also may be willing to seek out partnership opportunities through a knowledgeable, trusted financial adviser.

50-60 points: You are an aggressive risk-taker, as apt to go bungee jumping as to make a speculative investment in a start-up company. You may be willing to invest in growth stocks, growth funds and even chancier ventures. Be warned: the higher the return you seek, the greater your risk of losing your capital. But then you probably would just pick up the pieces and start again.