The Importance of Risk Tolerance Assessment

1. The Importance of Risk Tolerance
Assessment
By: Christopher Fess

2. The Importance of Risk Tolerance Assessment
Financial Advisor Christopher Fess provides clients with a range of services and products related
to retirement and estate planning, investing, and tax reduction strategies. As an advisor for Fess
Financial, Christopher Fess performs a risk tolerance assessment on the client's investment
portfolio.

3. The Importance of Risk Tolerance Assessment
As a part of wealth management strategies, risk tolerance helps the adviser and the client
ascertain which investment strategies are appropriate for their financial goals. Risk tolerance
involves assessing the client’s ability to weather financial losses. In determining just how much risk
a person is willing to take in investing, the adviser might ask the client to answer a questionnaire.
Among the various questionnaires, Riskalyze and FinaMetric are two of the more common
measurements used to determine a client’s comfort level with taking risks.

4. The Importance of Risk Tolerance Assessment
Another factor for consideration about risk tolerance is time. With more time, an adviser can create
a portfolio that has riskier investments because, over the long-term, time hedges risk. Conversely,
someone who is going to retire in less than 10 years might want to be conservative with their
investments because there is not enough time to make up any losses if the portfolio loses money.

5. The Importance of Risk Tolerance Assessment
Finally, the size of the portfolio is also used to determine how much risk an investor can stand. For
example, a portfolio with $5 million can withstand more risk than one that has $500,000. If shares
in the portfolio lose value, the one with more money has a larger cushion.