FYI: Advisors commonly determine their clients’ risk tolerance before making any portfolio recommendations. Once known, advisors work to create portfolios designed to achieve investors’ goals and whatever required return and associated risk they necessitate.
This approach is flawed.
The best path forward is not to try designing an optimal portfolio; we all know such a thing doesn’t really exist. Rather, it’s about helping clients adjust their goals, such that they don’t need more risk than they can tolerate in the first place. Stated even more plainly, in a world where portfolios are invested to achieve specific goals, the first step is not to align the portfolio to the client’s risk tolerance, but to align the client’s goals to their capacity for tolerating risk.
Regards,
Ted
https://www.financial-planning.com/news/kitces-advisors-need-to-update-approach-to-risk-tolerance?brief=00000153-6773-d15a-abd7-efff45d10000
