Greg Davies: Combatting the risk of risk mismanagement

Meet emotional-comfort needs

clock • 6 min read

Risk management is not about avoiding risk as that means sacrificing the chance of gains. Instead, explains Greg Davies, risk management is about achieving the best deal for the risks investors choose to accept

As a supplement - or possibly, in some more care-free circumstances, a substitute - to a psychometric assessment of risk tolerance, an adviser may sketch a chart like the one below and then invite an investor to say which path they would prefer to be on. Source: Oxford Risk. For illustration purpose only The way a chart like this is usually presented ensures everyone picks B and - hey presto! - everyone is ‘medium risk' (give or take a leaning towards A or C that define the upper and lower bounds of medium). This has the advantage of matching what we know about risk tolerance - tha...

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