Behavioral Loss Tolerance Questionnaire

Thank you in advance for completing this short questionnaire. Along with other information, your responses will provide us with valuable insights to determine your behavioral loss tolerance, which is one of the three prongs used to create investment portfolios aligned with your risk objectives. More information is available below if you’re curious.

Properly tailoring an investment portfolio to our client's goals involves careful analysis and synthesis of three dimensions of their risk objectives to formulate their risk tolerance. These dimensions include:

  1. An investor's need for risk:

    • When considering an investment portfolio, it is important to assess the required rate of return (RoR) needed to meet the investor's future lifestyle, charitable, and dynastic goals. This evaluation should be done in conjunction with capital market expectations. A calculated required portfolio RoR can help suggest potential asset allocation strategies that are aligned with market risks.

  2. An investor’s ability to take risk:

    • The factors that determine an investor's financial ability to withstand declines in portfolio values include their time horizon, their potential need for liquidity, and their risk capacity. These elements play a crucial role in determining the level of risk an investor can take to achieve their goals. Sometimes, an investor's need for risk can be limited by their ability to take risks.

  3. An investor’s behavioral loss tolerance:

    • Market volatility can often disrupt even the most carefully planned quantitative portfolio strategy. To deal with such situations, it is recommended to use psychometric tools such as questionnaires (like the one above) that have a proven track record of reliability and validity in predicting an investor's emotional and behavioral responses toward loss of portfolio value and investing discipline.

As your financial advisor, we will then reconcile these dimensions to formulate your OVERALL RISK TOLERANCE. Your overall risk tolerance helps shape our professional judgment when tailoring portfolio allocation recommendations to meet your investment goals and objectives.