The Challenge of Understanding Your True Risk Tolerance
Two Quants and a Financial PlannerMay 30, 202300:40:01

The Challenge of Understanding Your True Risk Tolerance

Figuring out an investor's true risk tolerance can be a very difficult process. There are certainly standard tools and processes that can be used to try to find the answer, but as Mike Tyson said "Everyone a plan until they get punched in the face." In this episode, we talk through the different types of risks investors face in markets and discuss some of the approaches we have used to better assess investors' true ability to handle them.

00:00 - Jack needs a new shirt
02:54 - the process of defining risk
04:47 - ability and willingness to accept risk
07:46 - Jim O'Shaughnessy's two points of investor failure
12:33 - the challenge of assessing risk tolerance in advance
15:42 - how to simulate bad markets before they happen
22:10 - the importance of focusing on actual actions during past bear markets
27:33 - risk tolerance is domain specific
28:44 - using advanced risk metrics
31:36 - Can risk tolerance be broken down to a single score?
34:16 - How investors who don't work with an advisor can assess ability to take risk
38:50 - Episode summary

ABOUT THE PODCAST
Learning how to be a financial planner is one thing. Doing it is another. Follow along with new financial planners Jack Forehand (@practicalquant) and Justin Carbonneau (@jjcarbonneau) as experienced veteran Matt Zeigler (@cultishcreative) helps them navigate the complex world of financial planning and learn about the most important topics that impact all of our financial futures. From investments to retirement to college planning to estate planning to insurance and beyond, we will cover the major financial planning issues that impact all of our lives and will provide a framework to help investors tackle them. We hope you will join us on our learning journey.

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