Tolerance for Risk

Investors don’t like surprises, especially when it concerns their investments

At WDS, our job is to help clients develop an investment strategy that is consistent with their personal risk tolerance and investment objectives. This balance point is called investor suitability.

What is risk tolerance? Broadly speaking, risk tolerance is an individual's psychological willingness to undertake a non-guaranteed course of action. But when it comes to personal investing, it usually relates to someone's ability to stomach market downturns.

Gaining an accurate assessment of a client's risk tolerance is challenging for a portfolio manager. Simply asking, "What is your risk tolerance?" does not produce an answer. That's why WDS uses a robust risk profiling tool to help our clients reach properly informed risk/return trade-off decisions.

Risk tolerance does not map to a "portfolio" but provides a personality characteristic — much like IQ — relative to others. It's a conversation-starter to evaluate a suitable asset allocation strategy for a client's money. As a result, you have a better sense of the risk with respect to your expectation for returns.

• Assess a client's risk tolerance
• Link result to a representative investment portfolio
• Frame portfolio's investment expectations based on historical patterns
• Recommend a potential asset mix combination