Sensible investment and wealth management requires a balance between your risk profile and investment portfolio volatility.Both of these factors can be combined to make up your investment policy and investment philosophy.It’s important to understand that your risk profile is really comprised of two aspects: your risk attitude and your risk capacity. Risk attitude is the true measure of your personal comfort with risk. Are you willing to risk a less favourable outcome whilst attempting to achieve a more favourable one? (risk vs return).Risk capacity is your ability to sustain a less favourable outcome without jeopardising your original goals and objectives. Risk capacity is affected by factors such as time horizon (allowing you time to recover from an adverse return) and total wealth (allowing you to go through a decline in account value and still maintain your desired spending).The two areas are as important as each other and it is vital that you take both into account when making important investment decisions. For example, if your risk attitude means that you could sustain a 25% market decline without any impact on your goals, the appropriate portfolio may contain 60-80% equities.However, if your risk attitude measure indicates that any decline in excess […]

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