Part of my job involves communicating how we work out the level of risk a client should take with their money. We think about three key areas:
- Willingness to take risk – how much risk can they tolerate or do they want to experience
- Capacity for loss – what level of losses could they afford to experience without having a material impact on their wellbeing or achieving their goals
- Need to take risk – do they need to take a risk, how much risk do they need to generate the returns that they need
I like to think of these as three sides of a triangle with our client in the middle. We try to find a solution or a compromise which satisfies all three areas.
In the September issue of Professional Paraplanner I explain this in more detail: http://viewer.zmags.com/publication/f5f5f0fc#/f5f5f0fc/14