Attitude to Risk

Question 1

What is the purpose of a Client Risk Questionnaire

Answer 1

Determine Risk Appetite and Tolerance

Can quantify the approach to portfolio construction

Question 2

Give an example of a question asked on a client risk questionnaire

Answer 2

If you portfolio were to drop by 30% in a year, what would be your reaction?

a) worry and withdraw
b) ask for a review
c) maintain portfolio for long-term

Question 3

How can bias be avoided on client risk questionnaires

Answer 3

1) don’t allow middle of the road answers
2) Ask same question multiple times in severl ways
3) mix numerical and narrative questions

overall should be concise and easy to interpret

Question 4

Give 3 pros of using client risk questionnaires

Answer 4

1) Easy to calculate and explain
2) Allows individuals with similar objetives to be allocated different strategies
3) Can track a change in attitude to risk

Question 5

What is the main risk which faces an investor who is decumulating

Answer 5

Sequence Risk

Question 6

What is sequence risk?

Answer 6

the danger that the timing of withdrawals from a retirement account will damage the investor’s overall return

Question 7

What is the primary risk an investor who is accumulating faces?

Answer 7

Investment risk

Question 8

What does investment risk comprise of?

Answer 8

Shortfall risk & inflation

Question 9

How can an investor reduce the volatility of a bond portfolio

Answer 9

1) increase coupon
2) shorten maturity
3) add inflation linked Gilts
4) remove currency risk