One of the most important things an investor can do to ensure long-term success is find out how much risk is appropriate for their situation.  When we use the term risk, we mean “uncertainty of expected returns”.

Investors have three basic categories that they must analyze:  time horizon, risk tolerance and investment knowledge.

Time Horizon

The sooner an investor plans to withdraw funds, the less risk is acceptable.  Remember, risk is defined as “the uncertainty of expected returns”.  If an investor is certain that they will need the money in a short amount of time, the return needs to be fairly certain.  In other words a negative return is unacceptable.

Risk Tolerance

Some investors can tolerate fluctuation better than others.  If you have trouble sleeping at night because you are worried you might wake up tomorrow and find your portfolio down by a large amount, then you have a low risk tolerance.  On the other hand, if you only look at your portfolio infrequently, and you easily shrug off losses with the knowledge that everything will be ok in the long run, then you have a high risk tolerance.

Investment Knowledge

It goes without saying that the better you understand the mechanics of investing and the relationship between risk and return, you will be able to focus on long term goals instead of short term emotions.  This is acquired over time, sometimes many years.

Our Process

We have developed a very extensive Risk Tolerance Questionnaire to determine the proper amount of risk for each investor.  The questionnaire consists of 30 questions that address time horizon, risk tolerance and investment knowledge.  Upon completion of the questionnaire it is scored and the investor is assigned the appropriate portfolio, based on their individual score.

Download the Terrapin Risk Questionnaire

Terrapin Risk Tolerance Questionnaire

The very first step in doing business with Terrapin Capital Management is completing this questionnaire.  At the end of the questionnaire there are instructions for scoring it and determining your risk category.  If you prefer we can score it for you very quickly – just complete the questionnaire and send it back to us.  We’ll let you know the results.