Willingness to take risk
The psychological half of risk tolerance, read from what a client says and above all from how they behaved in past losses. It can be educated, but not overridden.
Where you will meet it
Willingness to take risk appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Tell apart an investor's return objectives and their tolerance for risk
“Risk tolerance has two distinct components that are frequently confused: the ability to take risk, which is objective and follows from wealth, time horizon and the importance of the goal, and the willingness to take risk, which is psychological.”
- Tell apart how much risk an investor wants to take and how much they can afford to take
“Willingness to take risk is psychological, revealed by the investor's own statements, by questionnaires and above all by past behaviour, such as selling in a downturn.”
See also
Practise it
Practise willingness to take risk until it is automatic: questions that explain every wrong option.
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