What is risk?  How much risk are you comfortable taking?  How much risk do you need to take?

Ask any number of people these questions and it is very likely that each person will have very  different answers as their understanding of risk and what it actually means to them varies significantly.

The management of Investment Risk is a key part of the role we perform when structuring a Financial Plan for you.  We have developed a three dimensional approach to evaluating Investment Risk which enables us to help you understand what your Risk Tolerance is and what taking risk means to you:

  • Risk Attitude.
  • Risk Appetite.
  • Risk Capacity.

Risk Attitude

Investing in riskier assets such as equities or property can be volatile. In order to establish your ‘attitude‘ or emotional tolerance to the risk or volatility involved, we use an online risk profiling system. Once we  know the level of risk you are comfortable taking we meet with you to outline in detail the potential gains and loses that can occur at that level of risk. At this meeting we will also provide you with a historical insight into the cyclical nature of these asset classes to broaden your understanding.

Risk Appetite

This covers your ‘need’ to take Investment Risk in order to achieve your goals. As such, once we have a clear understanding of what your goals are we look at the Personal Rate of Return (PRR) that is needed from your investments to achieve these goals. We will also factor in your Future Anticipated Expenditure and the growth or erosion of your capital, as demonstrated in your Cashflow Forecast, in order to provide you with an indication of the level of risk you actually need to take. We will then thoroughly discuss these findings.

Risk Capacity

The third dimension is your ‘capacity‘ to take risk. This is in effect the amount of losses you could sustain in adverse market conditions without affecting your current lifestyle or your financial goals. Capacity to take risk varies depending on the wealth you have accumulated and the stage you are at in life. Individuals who have accumulated wealth or who are some years off retirement and in employment can have a much greater capacity to take on risk than individuals who haven’t accumulated wealth or who are closer to or currently in retirement and living off their accumulated assets.

We also give significant consideration to your investment horizon. This will take into account, amongst other things your need to hold liquid cash, your stage of life, your health, and lastly inter-generational inheritance planning issues if applicable.

We will always work with you to find the solutions that are most appropriate for you.