My Risk Questionnaire

One of my readers asked to see my asset allocation questionnaire. Well, here it is:

Risk Questionnaire

How old are you?

When will you need the money at earliest?

When will you need the money at latest?

Most likely, when will you need the money?

Over the most likely horizon, what rate of return do you want to earn on your money, relative to money market rates and yields on high quality long bonds?

As a percentage of your assets, what is the most you could afford to lose over one year?

As a percentage of your assets, what is the most you could afford to lose over five years?

How closely do you want to watch your investments?  (Daily, Monthly, Quarterly, Annually, Never)

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When I was the investment actuary in the pension division of Provident Mutual, I would run into investment risk analyses that would make my head spin. My main gripes would revolve around the squishy questions that they would ask, many of which had nothing to do with long term investing.

Thus, my questionnaire. Feel free to use/modify it as you like. I have found that it is very good at sniffing out an investor’s real preferences. The last question also helps me understand the nature of the investor, and how much input/output he wants to have.

Risk tolerance is more a question of time horizon and loss averseness than anything else. Bravery and cowardice play a lesser role, if they even have a role.