What’s your investment risk appetite, or risk tolerance for investments? Virtually every wealth manager or financial advisor now has to determine their investment client’s risk appetite or risk tolerance prior to recommending investments to them. In theory, this is so that investors with low appetite or tolerance for risk should not be recommended investments which are not suitable for them. But can the opposite be true? That the process of determining an investor’s risk appetite understates their risk appetite and results in them taking on too little risk, and leaving their future at risk instead?

An investor’s risk appetite or risk tolerance is usually defined as a measure of how much of a loss an investor is willing to endure within their investment portfolio. It should take into account the investor’s age, investment goals, income, and comfort level, and this is subsequently matched with the volatility or price risk of