This risk capacity dimension assesses aversion or attraction to risk, providing an estimation of an investor's willingness or ability to experience an investment loss. The last 86 years have shown that stock market investing can be a wild ride, with a lot of volatility and uncertainty. Investors who hold riskier investments can expect higher returns, but with greater volatility. Some people take less risk than they're actually capable of taking, preferring the tranquility of Ferdinand the Bull over the untamed violence of Crossfire Hurricane to carry them on their ride through the market.
Sample Risk Capacity Survey Question:
What is the worst twelve-month percentage loss you would tolerate for your long-term investments, beyond which you would be inclined to sell some or all of your investment?
- A loss of 50%
- A loss of 40%
- A loss of 30%
- A loss of 20%
- A loss of 10%