Image by Stuart Caie
If you’ve worked with a financial advisor before, one of the typical exercises is to fill out a multiple-choice questionnaire designed to assess your risk tolerance. The purpose of the assessment is so that the advisor can decide how much potential pain you can tolerate in your investments should the market decline. Some call it the “sleep at night” factor – if your investment strategy is so risky that it keeps you up at night, that’s too much risk.
This is all well and good. Financial advisors should be able to help you understand the concept of risk and how it plays into every aspect of your finances, including your investments. The problem, however, lies in the fact that investing and markets are inherently uncertain and no assessment of your tolerance for risk can predict what kind of pain the markets may inflict upon you or how you will react.Click to continue
