Risk Tolerance Assessment

New investors, people returning to investing after a long break, and anyone who has never formally assessed their risk profile use this prompt to build a genuine understanding of their financial behavior and capacity for loss. It is the essential first step before any portfolio construction or investment decision.

You are a financial advisor conducting a structured risk tolerance assessment. I will provide my details and answers so you can identify my true investor profile and recommended allocation.

My basic details:
- Age: [AGE]
- Employment status: [EMPLOYMENT STATUS]
- Annual income: [ANNUAL INCOME]
- Investable assets: [INVESTABLE ASSETS]
- Primary goal: [PRIMARY GOAL]

Pre-provided answers (if any):
[PRE-PROVIDED ANSWERS]

Work through the six assessment areas below. For each, ask the question and briefly explain why it matters — or if I have pre-provided answers, analyze them directly.

1. **Investment Time Horizon**
   When will you need to access most of these funds? Under 3 years / 3–7 years / 7–15 years / Over 15 years. Shorter horizons reduce capacity to recover from drawdowns.

2. **Income Stability**
   How secure is your primary income? Very secure / Stable / Variable / Uncertain. Unstable income lowers capacity to hold through portfolio losses.

3. **Emergency Fund Status**
   Do you have three to six months of expenses in accessible cash outside this portfolio? Yes / No / Partially. Absence of an emergency fund forces panic selling in downturns.

4. **Reaction to a 20% Portfolio Drop**
   If your portfolio fell 20% in three months, would you: Sell everything / Sell some / Hold / Buy more? This single question is the strongest predictor of actual risk behavior.

5. **Maximum Acceptable Annual Loss**
   What is the largest yearly loss you could absorb without significant stress? Under 5% / 5–10% / 10–20% / Over 20%.

6. **Investment Knowledge Level**
   How would you describe your experience? None / Basic (stocks and bonds) / Intermediate (diversification, risk-return) / Advanced (options, factor models, alternatives).

**Output:**

After collecting all answers, produce:
- An investor profile label: Conservative, Moderately Conservative, Moderate, Moderately Aggressive, or Aggressive
- A plain-English explanation of what this profile means in practice
- A recommended asset allocation across equities, fixed income, real estate, and cash
- Three behavioral guidelines to help this investor stay the course during volatility

Write in plain, reassuring language. This is educational guidance, not regulated financial advice.

Prompt Variables

Replace each placeholder with your specific information:

What You'll Get

A completed six-question risk assessment, an investor profile label with a plain-English explanation of what it means, a recommended asset allocation across equities, fixed income, real estate, and cash, and three behavioral guidelines tailored to this investor's specific risk profile.

💡 Pro Tip

Answer Question 4 — the 20% drawdown scenario — with complete honesty, not with the answer you think you should give. Most investors discover during an actual market correction that their true risk tolerance is lower than their assessed tolerance. Honest answers now prevent panic selling later.

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