What kind of an investor are you?

To answer this question, you first need to determine your risk tolerance level. Risk is the amount of volatility and uncertainty you're willing to accept from an investment in seeking your financial goals.

Some investments carry a higher level of risk than others. Generally, the higher the risk of an investment, the greater its potential returns. The lower the risk, the less likely it is for that investment to generate a higher rate of return. It is important to note that there is market risk involved when investing in mutual funds, including possible loss of principal.

To help determine your risk level, ask yourself, "How comfortable will I be watching my investment go up and down in value?" The more comfortable you are with so-called price volatility, the greater the risk you are probably willing to assume.

Your registered State Farm agent can help you determine your risk level by asking you a few key questions about your investment temperament and financial needs.

The next step in the process of determining your profile as an investor is to identify your time horizon--the amount of time between now and when you need the money to pay for your stated goal.

Generally, the more time you have, the more risk you can afford to assume. The reason: the longer your time horizon, the more time you have to ride out the market's ups and downs in pursuit of your financial goals.

Once you know how much risk you feel comfortable with, you can focus on investments that assume a level of risk you find acceptable and rule out those that you believe are unsuitable for your personal financial situations.

When you invest your assets in financial products that assume little or no risk, your money may not have the opportunity to grow as fast as you would like to achieve your goals.

You also need to consider the effects of inflation on your money. When your money doesn't grow fast enough to keep pace with inflation, it can affect your standard of living over time.

Identifying the level of risk you are willing to assume will help you determine whether you are a conservative investor, an aggressive investor or somewhere in between. This is an important step because it will help you choose which investments are suited to your individual needs as well as remove less suitable investments from consideration.

Your registered State Farm agent can be a valuable resource in helping you determine what type of an investor you are.

State Farm VP Management Corp Risk/Important Disclosures. State Farm Mutual Funds Prospectus. The State Farm College Savings Plan Enrollment Handbook (PDF 260 KB) .

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AP2008/01/9840