Calculating risk capacity is the first step to deciding which portfolio will generate optimal returns for you.

Why Do You Need This?

No one likes regret. Mistakes can be helpful teachers, but some mistakes don’t leave you room to recover. Risk management is about repeatedly avoiding devastating decisions that can’t be easily reversed. If you’ve ever been on a first date, you know the pulse pounding sensation that comes with taking a relational risk. Even if the relationship ultimately doesn’t go the way you initially hoped, it can be more worth it. As the saying goes “it’s better to have loved and lost, than to have not loved at all”. But some risks are not worth taking. We want to help you know which is which.

Risk isn’t just an unquantifiable psychological trait. It can be measured to give you an accurate grasp of the key factors involved so you can distinguish wise risks from probable regrets.

We want to help you understand risk capacity, risk tolerance, and risk required in order to discover and dictate financial options. At the same time, factoring in these realities will respect the financial “unknowns” so that every risk you take is a calculated one.

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The Psychographic Dimensions of Risk

What is "Risk Capacity?"

This is a measure of the maximum amount of financial risk you can afford. Each investor has a unique risk capacity and can be identified by a risk capacity score. For example, John runs a successful contracting business worth $5m, but has very little liquid assets, and so his risk capacity may be constrained.

What is "Risk Tolerance?"

This is the level of financial risk you are emotionally comfortable with and willing to take on. For example, Sally may operate a successful family physician practice with stable cash flow, and thus may be more willing to tolerate the emotions of more growth oriented investments.

What is "Required Risk?"

This is the risk associated with the return required to achieve your goals from the financial resources available. For example, Alice started saving later for retirement than some of her peers. As a result, she both needs to save more aggressively and also earn a higher rate of return in order to meet her objectives.