Know Yourself - Risk Tolerance & Risk Capacity
The Meaningful Money Personal Finance Podcast
Pete Matthew
4.9 • 1.7K Ratings
🗓️ 20 July 2016
⏱️ 29 minutes
🧾️ Download transcript
Summary
Last week we talked about risk and how it relates to the timescale of your investments and the underlying volatility of the portfolio you build. Today I want to clear up, once and for all, some confusion about risk tolerance and risk capacity. This is essential to your investing success, so tune in…
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Risk Tolerance & Risk Capacity
For novice investors, risk can sound exciting, because they have heard that rewards accompany risky investments. For those in later life, perhaps with some investing miles under their tyres, risk is something to be wary of, if not avoided entirely. There are two major factors you need to consider when thinking about the risk you should take with your investments, and that’s what I’m carefully going to go through with you today.
This might be the most important episode in this season, so pay close attention.
In this session, you'll discover:
- That Risk Tolerance and Risk Capacity are two very different things
- One is your emotional ability to cope with investment loss, and
- The other is your financial ability to cope with investment loss.
- When a loss is not really a loss
- The best place to get your own risk tolerance measured
- A thought experiment to determine how you might react in certain circumstances
Resources mentioned in this week's show
Risk Profiling: myrisktolerance.com Podcast: Season 2, Episode 1 - Why Invest? Podcast: Season 2 Episode 2 - Risk, Volatility & Timescale Try Audible for Free
Free email course - Learn How To Invest
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Question: What was your risk tolerance? Were you surprised with the result of the test?
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Transcript
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| 0:00.0 | Hi folks and welcome to the Meaningful Money podcast Season 2, Episode 3. |
| 0:04.2 | Nana, the nursemaid, being a dog, kept her opinions to herself and viewed the whole |
| 0:11.8 | affair with a certain tolerance. |
| 0:18.2 | This is the podcast, dedicated to helping you put your finances in order. |
| 0:26.7 | My name is Pete Matthew and I'm going to share with you everything you need to know |
| 0:29.9 | and everything you need to do to secure your financial future. |
| 0:33.6 | I'm here to help you make sense of money. |
| 0:44.3 | Thank you. I'm here to help you make sense of money. Hey, great to have you back with me, folks. |
| 0:47.2 | Good to be here again, continuing season two. |
| 0:50.2 | The new sort of season-based format, we're talking all about investment. |
| 0:53.4 | This season's going to be |
| 0:54.2 | several weeks. I don't know how many yet. You'd think I'd have mapped it out, but really haven't |
| 0:58.5 | been that forward thinking. I should probably address that. But it's going to be quite a few weeks, |
| 1:02.8 | probably a dozen, something like that, deep diving into getting started with investing. |
| 1:09.4 | Now, last week we talked about risk and how it relates to the |
| 1:12.9 | timescale of your investments and the underlying volatility of the portfolio that you end up |
| 1:17.9 | building. But today I want to clear up once and for all some major misconceptions about risk. |
| 1:23.7 | All right. And this is absolutely essential to your investing success so listen up tune in this is going |
| 1:30.6 | to be a blinder possibly the most important one of the season so really take it seriously and |
| 1:35.6 | I hope it's helpful to you as usual after the main body of the show going to look at some reviews |
| 1:39.8 | that have been left by you guys very kindly announce what we're going to be talking about next time |
| 1:44.0 | before we get into any of that though remember this podcast is brought to you with the very kind help of my have been left by you guys very kindly, announce what we're going to be talking about next time. |
... |
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