Determining a client’s risk tolerance is one of the most important things for an advisor to establish with a client. At Tradewinds Capital Management we utilize a Risk Tolerance Questionnaire to assist our clients in discovering and quantifying their personal tolerance. Risk tolerance must also be matched to an appropriate time horizon and/or income withdrawal rate for each account to be an effective tool.
Any participant in the financial markets needs to recognize that seeking increased returns generally involves accepting greater volatility and risk. Conversely, seeking less risk and volatility generally decreases investment returns over time. The goal of establishing the proper risk tolerance is to assist our clients in staying on course when financial storms arise. Investment plans need to be adhered to over multiple years and economic cycles to be fully realized. Understanding one’s personal risk tolerance can be central to achieving one’s investment goals.