Head Better Than Heart in Determining Investing Risk Tolerance

A factor that financial advisers have to consider with their clients is the emotional risk tolerance for investing. Knowing how much investment risk a client can stomach is important, especially if their portfolio comprises high risk accounts. However, there are other questions to be asking, as well.

Rather than focusing on the emotional reaction to investment risks, clients and their advisers should logically consider all aspects of a client’s life before deciding how much risk to take with investments. For example, an entrepreneur may be emotionally comfortable with high risk investment situations. But the fact that their business is already high risk indicates that their investments should be low risk – they should have higher emergency funds, higher insurance coverage, etc. On the other hand, a couple retiring with a pension and dual Social Security income may feel they aren’t ready for high risk investment. However, with a long investment road still ahead of them and a stable financial situation, they are logically positioned to take on more risk. Focusing your decision making on the logical assessment often yields greater rewards, and a stronger financial situation, than making investment decisions based on your emotional tolerance.
If you’re interested in reading more about the steps to begin logically evaluating your risk tolerance, read our article, “Head better than heart in determining investing risk tolerance,” in Columbia Daily Tribune.

As a financial planner specializing in comprehensive financial planning, Tim enjoys helping clients in Columbia, MO with managing their taxes, financial risks and other financial issues.

If you would like to learn more about this and other personal financial planning topics serviced by Clarity Financial please contact us at 573-447-7007. Clarity Financial, LLC is a fee-only financial advisory firm in Columbia, MO. Appointments are welcome and initial consultations are free. 

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This article is the property of Clarity Financial LLC.