can stand to take. Determining how much risk you can stand-your temperamental tolerance for risk-is more difficult. It isnt quantifiable. To that end, many financial advisers, brokerage firms and mutual-fund companies have created risk quizzes to help people determine whether they are conservative, moderate or aggressive investors. Some firms that offer such quizzes include Merrill Lynch, T. Rowe Price Asso- ciates Inc., Baltimore, Zurich Group Inc.s Scudder Kem- per Investments Inc., New York, and Vanguard Group in Malvern, Pa. Typically, risk questionnaires include seven to 10 questions about a persons investing experience, financial security and tendency to make risky or conservative choices. The benefit of the questionnaires is that they are an objective resource people can use to get at least a rough idea of their risk tolerance. "Its impossible for someone to assess their risk tolerance alone," says Mr. Bernstein. "I may say I dont like risk, yet will take more risk than the average person." Many experts warn, however, that the questionnaires should be used simply as a first step to assessing risk tol- erance. "They are not precise," says Ron Meier, a certi- fied public accountant. The second step, many experts agree, is to ask your- self some difficult questions, such as: How much you can stand to lose over the long term? "Most people can stand to lose a heck of a lot tem- porarily," says Mr. Schatsky. The real acid test, he says, is how much of your portfolios value you can stand to lose over months or years. As it turns out, most people rank as middle-of-the- road risk-takers, say several advisers. "Only about 10% to 15% of my clients are aggressive," says Mr. Roge.   Whats Your Risk Tolerance? Circle the letter that corresponds to your answer 1. Just 60 days after you put money into an investment, its price falls 20%. Assuming none of the fundamentals have changed, what would you do? a. Sell to avoid further worry and try something else b. Do nothing and wait for the investment to come back c. Buy more. It was a good investment before; now its a cheap investment, too 2. Now look at the previous question another way. Your investment fell 20%, but its part of a portfolio being used to meet investment goals with three different time horizons.         Equation 6.1 is consistent with the notion that utility is enhanced by high expected re- turns and diminished by high risk. Whether variance is an adequate measure of portfolio risk is discussed in Appendix A. The extent to which variance lowers utility depends on A, the investors degree of risk aversion. More risk-averse investors (who have the larger As) penalize risky investments more severely. Investors choosing among competing investment portfolios will select the one providing the highest utility level. Risk aversion obviously will have a major impact on the investors appropriate risk-