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How Risky Is That?

A “risky” action, venture or investment is one where there is a possibility of bad consequences.

In the financial world professional advisors are obliged to assess the risk tolerance of the would-be client and after that assessment only recommend financial action which matches the level of risk that the client has “recorded”. Obviously a highly risky investment is one where there is a significant possibility of bad consequences – losing your money! “Bad” becomes highly subjective, ranging from losing any of the investment to losing the lot.

Financial advisors are obliged by law to match the risk profile of the client to the investment recommended. Investing advice should always be made by means of a “statement of advice” but by far the least scientific measurement made during the advice process is the risk assessment.

An advisor who errs on the side of caution may easily upset a client who is always given the opportunity to accept, correct or reject the advisor’s assessment of their attitude to “risky investments”.

Hindsight in a falling market produces interesting reactions.