Understand Your Investment Risk Profile
Risk preference alone is often emotions-based and reflective of an individual’s tolerance for risk at a specific moment in time. Risk capacity is the amount of risk investors can actually take on, given their current life situation.
1) Risk Capacity
How much risk the investor can or can not take given their current life situation – ability to take risk.
2) Risk Preference
How much risk the investor is willing to take.
3) Portfolio Risk
The portfolio risk score should fall between the risk preference and risk capacity scores.