Risk Capacity

Valid and reliable measures of risk tolerance and the short-term behaviours investors exhibit in seeking emotional comfort with the investment journey both have crucial roles to play in a risk-profiling process.

Risk appetite questionnaires need not be (indeed, should not be) elaborate. Over-engineered and superficially sophisticated 'revealed preference' approaches result in exactly the same problem for investors as Kids do for investments:

Profiling outputs should not be set to match the 7-point scale used in KIIDs. There is little point to profiling investors with more granularity than you can provide solutions for;