Building on a previous thread: http://www.analystforum.com/phorums/read.php?13,647591,647842#msg-647842 Risk Tolerance is defined by the ability & willingness to take investment risk. Can someone confirm these categories & how the investors should plan, going forward: 1) High Ability, Low Willingness 2) High Ability, High Willingness 3) Low Ability, Low Willingness 4) Low Ability, High Willingness
abacus Wrote: ------------------------------------------------------- > Building on a previous thread: > http://www.analystforum.com/phorums/read.php?13,64 > 7591,647842#msg-647842 > > Risk Tolerance is defined by the ability & > willingness to take investment risk. Can someone > confirm these categories & how the investors > should plan, going forward: > > 1) High Ability, Low Willingness > 2) High Ability, High Willingness > 3) Low Ability, Low Willingness > 4) Low Ability, High Willingness for 1) honour the willingness to take lower risk 2) educate the investor and go ahead since ability matches the willingness 3) honour the willingness to take lower risk 4) educate the investor and note down the differences and try to convince the investor about his ability GUYS IF I M WRONG IN MY ASSESSMENT PLEASE CORRECT ME THANKS…
Yes, there is a) ability to take risk and b) willingness to take risk. Risk tolerance is the lesser of (a) and (b), “unless there are compelling reasons to push people above their willingness to take risk.” You should never push beyond the ability to take risk under any conditions. I haven’t seen any examples of compelling reasons, but presumably they would be something along the lines of expected future liabilities or income needs that cannot be met with the present willingness to take risk. At this point, you would need to have a discussion about either abandoning the liabilities (if possible) or increasing the risk exposure to some higher level that can meet them.