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Can We Really Measure Risk Tolerance?

Thursday, January 30, 2014 - 8:53 AM
"It is a staple of financial advising to measure a client's risk tolerance; whether out of a mere regulatory requirement to do so, or out of a best practices desire to better understand a client's comfort level with the investments (and other financial planning advice) being recommended, so the process to measure risk tolerance is essential in today's world. Yet many financial advisors severely question the value of doing so; as the saying goes, "Clients are risk tolerant in bull markets, and intolerant of risk in bear markets, so is there really that much value to going through the exercise at all?"

Can We Really Measure Risk Tolerance Or Does It Swing Too Wildly? | Kitces.com
3
ShorebreakShorebreak2,378 posts since
Apr 6, 2010
Rep Points: 12,696
1. Thursday, January 30, 2014 - 12:03 PM
I had no risk tolerance and couldn't sleep in the last half of the 90's. I didn't get into the market until 1996 and was out by Dec 1999. Couldn't sleep nights when making 20 to 30%. I will take the CD rates no matter what they are. At least I know what I have and what I can expect. I do not like uncertainty. 
1
AllyAlly785 posts since
Jan 16, 2010
Rep Points: 2,281
2. Thursday, January 30, 2014 - 2:22 PM
#1  Your post brings back memories.  When I first took upon myself to "save" for the future, I was engrossed in studying every financial item I could find.  One day I was reading an article in the "Money" Magazine and one sentence stayed with me all the rest of my life.  The writer wrote "Only put your money in financial products you will be able to sleep with at night".  If it keeps you awake worrying about it, it's wrong for you".  Since I am a worrywart by nature, I knew 99% of the products were not for me so I decided to zone in on the highest paying CDs I could find and set myself a goal for the future.  Guess what?  I made my goal and went beyond it and never needed sleeping pills to do it.  Of course it also took getting my family to agree to a certain way of life to make sure CDs didn't have to do all the work but it could be done years ago.  Whether it can be done in this heinous low interest rate environment, is another thing.   
2
paoli2paoli21,146 posts since
Aug 10, 2011
Rep Points: 5,113
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