{"id":22808,"date":"2018-05-11T00:00:00","date_gmt":"2018-05-10T18:30:00","guid":{"rendered":"https:\/\/www.moneyworks4me.com\/investmentshastra\/what-is-the-risk-ability-and-willingness-tolerance-in-investing\/"},"modified":"2018-05-11T00:00:00","modified_gmt":"2018-05-10T18:30:00","slug":"what-is-the-risk-ability-and-willingness-tolerance-in-investing","status":"publish","type":"post","link":"https:\/\/www.moneyworks4me.com\/investmentshastra\/what-is-the-risk-ability-and-willingness-tolerance-in-investing\/","title":{"rendered":"What is the Risk Ability and Willingness\/Tolerance in Investing?"},"content":{"rendered":"

Risk Willingness\/Tolerance and\u00a0Risk Ability:<\/strong>\u00a0<\/strong><\/i><\/h2>\n

Investments should be made logically<\/strong>, with an attempt to minimise risk while meeting your long term financial goals. Whenever there is uncertainty of what the outcome will be, there is a risk. People react to risks or uncertainty differently. And, it has a big impact on how they invest, and hence, on actual returns earned.\u00a0Risk Willingness or Risk Tolerance is the degree of uncertainty that you can withstand, without losing sleep<\/strong>. It is highly situational, difficult to measure accurately, and it changes over time. Often, investors may feel and profess that they are willing to take risks. But, a sudden drop in the market makes them panic and sell out at unfavourable prices.\u00a0<\/p>\n

Risk Ability<\/strong><\/span>\u00a0or the answer to \u2018Can I afford to take risks?\u2019,\u00a0<\/strong><\/i>is the capacity to bear risk or sustain losses without a significant impact on your lifestyle<\/strong>.<\/strong><\/span>\u00a0It is high when you have time\u00a0(years)\u00a0<\/i>on your side\u00a0(to wait for the returns to happen)\u00a0<\/i>for both compounding to work and to wait through market corrections, even if it takes a few years. It\u2019s precisely this reason that we insist you look at your Investable Surplus, the money you don\u2019t need for a long time.<\/p>\n

Risk Willingness and Risk Ability are influenced by a person\u2019s age and stage of life<\/strong>.<\/h2>\n

In general, Risk Willingness decreases after a certain age. Younger people with a steady and growing income and with double income have high Risk Ability.<\/p>\n

\n\n\n\n\n\n\n\n\n
Stage of Life<\/strong><\/td>\nFoundation<\/strong><\/td>\nAccumulation<\/strong><\/td>\nMaintenance<\/strong><\/td>\nDistribution<\/strong><\/td>\n<\/tr>\n
Age<\/strong><\/td>\n(20 \u2013 30) Young<\/td>\n(30 \u2013 60) Middle age<\/td>\n(60+ \u2013 80) Senior citizen<\/td>\n(80+) Old<\/td>\n<\/tr>\n
Earnings, Savings, Wealth<\/strong><\/td>\nJust starting to earn. Expenses are low, savings begin<\/td>\nEarnings have increased. If expenditure is controlled savings can increase at a faster rate<\/td>\nRetired, dependent on returns from accumulated wealth<\/td>\nFormalise transfer of accumulated wealth to descendants<\/td>\n<\/tr>\n
Time Horizon<\/strong><\/td>\nLong-term: 30+ years till retirement<\/td>\nLong-term: Current earnings exceed current expenditure<\/td>\nMedium-term: Needs to change from growth assets to investments which provide a steady income<\/td>\nShort-term<\/td>\n<\/tr>\n
Risk Willingness\/ Tolerance<\/strong><\/td>\nHigh: No dependants, does not fear losses<\/td>\nHigh going to Moderate: Confidence in earning ability, more mature in handling risk, understands the \u00a0need to grow wealth for future<\/td>\nLow: Loss of regular income, need to conserve wealth rather than grow wealth<\/td>\nLow: Ensure that accumulated wealth is sufficient to support lifespan and leave legacy to heirs<\/td>\n<\/tr>\n
Risk Ability<\/strong><\/td>\nModerate to High<\/td>\nHigh and then Moderate<\/td>\nModerate\/Low<\/td>\nLow<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n

An Investor who has a high Risk Willingness, but a low Risk Ability should not make high risk investments. On the other hand, a person who has a high Risk Ability but low Risk Willingness can take the right risks.<\/p>\n

\u00a0Read Also:\u00a0<\/strong><\/span>\u2018<\/strong><\/span><\/a>How does your current source of income affect your Risk Ability?<\/strong><\/span><\/a>\u2019<\/strong><\/span>\u00a0<\/p>\n

If you liked what you read and would like to put it in to practice Register at MoneyWorks4me.com<\/a>. You will get amazing FREE features that will enable you to invest in Stocks and Mutual Funds the right way.<\/p>\n","protected":false},"excerpt":{"rendered":"

What is the Risk Ability and Willingness\/Tolerance in Investing?<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_is2025_no_summary":false,"footnotes":""},"categories":[1183,1144],"tags":[],"class_list":["post-22808","post","type-post","status-publish","format-standard","hentry","category-basics","category-sensible-investing"],"_links":{"self":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/22808","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/comments?post=22808"}],"version-history":[{"count":2,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/22808\/revisions"}],"predecessor-version":[{"id":23204,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/posts\/22808\/revisions\/23204"}],"wp:attachment":[{"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/media?parent=22808"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/categories?post=22808"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.moneyworks4me.com\/investmentshastra\/wp-json\/wp\/v2\/tags?post=22808"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}