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How did you design the questionnaire to determine my risk tolerance score?
QuietGrowth determines both the objective risk tolerance and the subjective risk tolerance of the prospective client. For that, we split the questionnaire to determine the objective and subjective risk tolerance of the prospective client. Some questions in the questionnaire will be based on objective risk to determine the ability of the prospective client to take risk, and the rest of the questions will be on subjective risk to determine her willingness to take risk. We will also identify and factor in for any inconsistencies in the manner in which the client answers those questions meant to determine the subjective risk tolerance.
- Objective ability of the client to take risk based on her projected savings after expenses throughout her working years, projected retirement income, and projected retirement spending needs
- Subjective willingness of the client to take risk
- Consistency of responses given by the client to the questions used to determine her subjective risk tolerance
We have designed our client risk tolerance determination methodology in such a manner that a minimum number of questions are sufficient to determine the risk tolerance of the client to a reasonable accuracy.
We ask objective questions to determine whether the client is in line towards her saving enough money to afford her likely spending needs for the rest of her life. This also helps us in partly determining how much risk the client can take with her investments.
We also ask subjective risk questions to determine the level of risk a client is willing to take. Understanding the attitude of the client towards risk is important because ultimately the client needs to be comfortable with the risk element of her investment plan.
Analysing the consistency of the answers given by the client for the subjective risk questions helps us to know whether the client actually understands the questions that we ask. For example, if the client is willing to take a significantly higher risk as per her answer to one subjective question, and is willing to take a much lower risk as per her answer to another subjective question, then she is inconsistent in her answers. Due to this inconsistency, we might assign a lower subjective risk tolerance score than she would have got otherwise.
We are mindful of the number of questions we ask, and intend to ask as few questions as possible. We believe that our well-thought list of questions is sufficient and highly effective in identifying accurately the risk tolerance score of a client. After the QuietGrowth account is created for the client and the client starts investing, we will continue to gather more information about her so that the accuracy of our understanding of her risk tolerance improves progressively.
Refer to our Investment Methodology page for more information.