Risk Tolerance Analysis
Financial Advisor Tim Hayes CRPS®, AIF®, AWMA®, CFS™, CTS™, CES™, APMA®, CAS®
I have been a professional financial advisor for thirty years. I specialize in building custom portfolios for retirees or people saving for retirement.
Psychologist Daniel Kahneman was awarded the 2002 Nobel Prize in economics for pointing out what some of us intuitively already knew: people dislike losing money more than they like making it.
I ask my new clients to complete a risk tolerance questionnaire because of disdain for financial loss. I do not intend to build them a portfolio that is 80% stocks, which might lose 30% in a bad year, when the client’s risk score indicates that they would sell everything if it dropped even 5%.
Disdain for loss can also hinder a client from wanting a portfolio, for fear that it might not grow fast enough to reach their financial goals. As their financial advisor, I need to alert my clients about possible pratfalls and provide them with personalized solutions: save more, take more risks, diversify more, or spend less.
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What Are the Risks of Your Investment Decisions?
Tim is a financial advisor with the experience and knowledge you can trust to provide the answer. Whether you’re an individual, small business, or company executive, he’ll put you on a financial path that’s right for your needs.
I built portfolios for hundreds of public school employees when I set up their 403(b) accounts. Therefore, I was excited when the U.S. Department of Labor finalized rules in 2011, allowing financial advisors to provide investment advice for employees with 401(k) plans.
For some individuals, nothing feels worse than seeing their account drop; conversely, others regret losing out on potential gains. Perhaps, the first investor’s portfolio was too hot, while the second’s portfolio was too cold.
My risk profiling system generates a personalized assessment of an individual’s risk tolerance and provides an opportunity to gauge if their current investments are too hot or too cold.
The evaluation is web-based, consisting of twenty-five questions, including eight optional demographic questions. It only takes fifteen minutes to complete. Upon completion, you receive a detailed report that includes your risk tolerance score.
After you receive your score, I can transfer it to an asset allocation mapping system to convert your score to a portfolio. I then use fi360’s proposal report to compare your current assets to the portfolio generated from your risk tolerance score.
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I am an Investment Adviser Representative at Cambridge Investment Research Advisors, Inc., a $44B RIA based in Fairfield, IA. I am also registered with Cambridge Investment Research, Inc., an independent broker-dealer with over 3,000 registered representatives nationwide.
I've held an industry securities registration for 30+ years and am subject to SEC and FINRA oversight.
Most clients pay fee-only or an hourly rate. The size and complexity of the client's wealth management and financial and retirement planning determine that fee.
Some clients pay a commission, mainly those with smaller accounts, i.e., Roth IRAs, some public-school teachers with 403b retirement accounts, or parents or grandparents who set up a 529 college savings plan.
The first introductory and fact-finding appointment can be in-person or by phone. The next meeting where I provide my recommendations should be in-person. (For the time being, telephone, Zoom, and email are replacing in-person meetings.)
Subsequent meetings during which we monitor your progress and investments can be done in-person or by phone, email, Zoom, or Skype - or, more likely, a combination of thee meeting types.
Why is Risk Tolerance Important?
Psychologist Daniel Kahneman won the 2002 Nobel Prize in Economics for bringing to light that people hate to lose money more than they like to make money. Aversion to loss is one of the reasons I ask you to measure your risk profile online at FinaMetrica. I would not want you to be holding a portfolio that is 80% stocks, which might lose 30% in a bad year, when your profile indicates that you would sell everything if it dropped even 5%.
For others, the opposite is true. You might need to take more risks to reach your financial goals. As your financial advisor, I need to alert you and give you options (e.g., take more risks, save more money, diversify your investments more). Each client’s risk profile must be respected.