Managing investment risk is in part a paradox of choice. In a presentation on risk tolerance and taking a behavioral science approach to risk management, Morningstar’s Stephen Wendel noted that investors destroy their wealth most often at emotional points. Are risk management questionnaires a waste of time, as articles in ValueWalk have previously stated? Plan for it: Risk tolerance driven by emotional state of mind When markets are at a high and investors “think money grows on trees,” investors are willing to take more risk than would be their norm. Buying at the top is obviously negative towards long term…
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- Plan for it: Risk tolerance driven by emotional state of mind
- Risk management questionnaires should focus on risk capacity, plans should include logical review points
- Have a plan to meet with clients on a regular basis, reinforce what will happen in a down market and encourage investors to stick to that plan in a positive way
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