Suppose a demon comes up to you and forces you to play a game where you will toss a fair coin. If the coin comes up heads you gain 20% of your total net worth. If the coin comes up tails, you lose 20% of your total net worth.
What percentage of your total net worth would you pay to banish the demon so that you do not have to play the game?
There is no right answer, although, in practice, savvy investors are happy to pay 4% to make the demon go away.
These are concrete examples of how a decent financial advisor can learn a bit about the risk tolerance of their clients. I don't think this is the practice here in the industry, but readers can use the book to confront FAs in Singapore just to look at their confused faces.
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