Attitide to Risk v Tolerance to Loss Volatility
Published / Last Updated on 21/10/2019
Attitude Towards Risk:
- May be based upon your experience, knowledge of markets.
- Amounts involved and the importance of the money to you.
- The proportion of investment compared to your total wealth.
- Length of time invested i.e. before you need the money.
- The objectives and goals for you and the investment.
- The proportion and mix of assets that you are happy with in proportion e.g. %s in cash, bonds, developed stock markets, emerging markets and speculative, venture markets.
Your perception of risk may be different to your neighbour even though you are both e.g. "medium" risk investors - but that definition will be dictated by all of the above.
Tolerance to Loss:
Is different to attitude to risk.
What would be the impact on your current and future financial position for different levels of investment losses in the short, medium and long term? +/-5%, +/-10%, +/20% etc?
We always suggest that you work on Short Term (money needed within next 5 years), Medium Term (5 to 10 years) and Long term (10 years +). Then establish an overall risk profile e.g. low to medium, medium, medium high etc with the proportion of the amounts of money segmented in each time and risk factor category.
Finally, agree and set maximum tolerance to loss for each segment.
