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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)


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.

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7 Responses to My Risk Questionnaire

  1. Jeff says:

    This is an excellent list of questions, very similar to those that I ask new clients, and use as the review with current clients.

    One problem is that recent stock performance has tested investors in all asset classes. Whether one has held stocks, corporate bonds, real estate, or commodities, the losses have been beyond what most regard as normal risk tolerance.

    There are two questions. What caused things to move beyond the expectations of most?

    And more importantly, what to expect.

    Those of us trying to advise must address both.

  2. Two very good questions which are also worth a full post. Thanks for asking them.

  3. Keith B says:

    That should read:
    I assume somewhere else you determine how much money a client needs? Do you use any software to determine a client’s cash flow based on their estimated income and expenses?

  4. No. No software. I need to estimate their time horizons. I encourage my “clients” to save as much as they can, because the future is finicky, and not easily predicted. Better for them to deny themselves now, and build up a cushion. Once the cushion becomes adequate, they can trim back. I assume that they can tap 4% of assets per year in retirement.

  5. Russ Wood says:

    Very good information as usual.
    My questions center on how much you can trust the answers provided by clients. I think a prime lesson learned by most this year, was that personal risk tolerance was less than thought. For example, many who thought they would be OK if their portflio lost 30% (because of age, etc) realized 30% was too much to take.

  6. David O says:

    All those questions are good, except:
    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?

    First of all, any investor would like to maximize the rate of return unless the trade off with risk is explicit (and it rarely is understandable by the average person).
    Second, targeting return and bearing the appropriate risk afterwards is likely not to be a good risk management approach.

  7. Russ — good point. Most people can bear less risk in practice than in theory.

    David O — I ask that question partially to get an idea of how realistic they are, so that I can try to explain what is possible, and with what likelihood.


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.

Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.

Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

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