Schwab Intelligent Portfolios(r) Investor Profile Questionnaire

When opening an account with Schwab Intelligent Portfolios, you should be ready to answer 12 questions to help the software tailor your portfolio. The website will then display suggested portfolio allocation and ETF breakdowns based on your answers. You can also run scenarios to see how your portfolio will perform in different scenarios.

If you're an investor, you'll want a customized portfolio that is suited to your risk profile, time horizon, and goals. Schwab Intelligent Portfolios recommends a diversified portfolio that maintains its allocation even when market prices change. With this approach, you can focus on your financial goals, rather than the stock market's daily fluctuations. And because the portfolios are positioned across the risk spectrum, they can perform in different market environments.

If you're concerned about your answers, Schwab Intelligent Portfolios consultants will contact you. They can discuss your answers and suggest revisions.

Investopedia

Investors' risk tolerance is a function of the level of risk they're willing to accept. For example, an investor's risk tolerance may change when they realize that they'll experience a loss. For example, if they expect a 50% loss to occur within six months, their risk tolerance will change to accommodate a 40% loss.

Risk tolerance is an investor's ability to withstand the loss of some money, in exchange for a higher return. Investors with high risk tolerance may imagine the thrill of making big gains, but also worry that they could lose everything. It's vital to understand your own risk capacity and decide whether or not to take risks to improve your financial future.

There are many tools that help advisors determine risk capacity. These tools provide quantitative information that can help determine the right portfolio for an investor. While risk capacity are easy to measure, risk tolerance is more difficult. Riskalyze has worked to make risk tolerance quantitative and rules-based. Riskalyze offers an assessment that can be integrated into the financial planning process.

FinaMetrica

FinaMetrica is a risk-tolerance assessment toolkit that includes a psychometric personal risk tolerance profile and supporting methodologies. Since its launch in 1998, FinaMetrica has gained worldwide recognition as the gold standard for assessing risk tolerance. Its toolkit is used by over one million financial advisers from over 20 countries.

Financial advisors can use the FinaMetrica tool to gauge a client's risk tolerance. The software's 25-question test generates a detailed report that includes both quantitative and qualitative results. The test can take about 15 minutes to complete.

Measurement error

Using risk tolerance questionnaires as a means of assessing risk tolerance is an unwise decision, as it will likely produce inaccurate results. These tests ask about irrelevant factors that may not affect the level of risk a person is willing to take. The ideal solution is to ask questions that are specific to risk tolerance and to calibrate these responses in an effort to accurately reflect the risks that investors are willing to take.

One of the main reasons most questionnaires fail is due to measurement error. While the statements are simple, they do not reflect the risk a person has in their portfolio. Instead, they are more like hypothetical choices that do not accurately reflect what a real investor would do. Furthermore, a person's past behaviour does not reveal their actual psychological preferences, and using these as the foundation for a risk tolerance model can reinforce bad behaviours.