Ability to take risk

CFA Level III
#1

This should be easy points, but what are things you always look for?

For me I always looks for:

Positively related to ability to take risk: portfolio size, time horizon, flexibility, current income

Negatively related: debt, goal importance, spending needs (seems like 8-9 nominal is typically considered too high)

Any more?

#2

Yeah I can add one I have seen as well

The ability to start back working. Person who stopped work early, say age 40 with large asset base can start back working.

#3

yea I don’t recall seeing a problem that had the return calc in the double digits, so maybe that’s a sanity check of sorts

#4

the most important point for me is : even if asset base is large/horizon long, if the after tax inflows do not cover outflows, ability to take risk drops as we rely on portfolio returns to fund shortfall.

#5

Can you explain? It seems like if the asset base is large enough, even if there are no inflows, there can still be a high ability to take risk.

#6

Lifestyle, support family members, children’ education, mortgage, … All affect ability.

Willingness is from words and what’s in the portfolio.

#7
  • Amount of human capital
  • Risk of human capital
  • Amount of personal debt
#8

single & no children, healthy, stable career, govt/pension to cover healthcare expense.