The Social Security Mistake Risk-Averse Folks Make
It has become standard practice that risk tolerance questionnaires are completed for almost every client during a financial planning or investment planning process. Risk tolerance questionnaires serve two purposes:
- Bluntly speaking, it is a "COA" instrument -- which stands for a "cover our..." (You can fill in the blank.)
- Partially driving No. 1 is the belief that a client's plan should be built around his or her unique situation and risk tolerance level.
While I have been outspoken about the usefulness -- or lack of usefulness -- of many risk tolerance questionnaires, understanding a client's risk tolerance level or risk aversion is valuable because people react differently when information is presented as a loss or a gain.
