A recent study by Ameriprise reveals some interesting data points on U.S. investors and investment risk.
- Nearly 90% say they are "cautious," and many will pull funds out of a volatile market or invest only where returns seem guaranteed, no matter how small.
- They view financial risk as "loss" (31%) or "uncertainty" (67%), rather than an opportunity.
- 58% are less likely than other people they know to make an investment for a high potential return at a high level of risk.
- 73% of what Ameriprise describes as "Risk Avoiders" lack financial plans, something that can be particularly important for them. A detailed plan can help ensure they are on track for retirement - and help alleviate some financial risks their approach has inadvertently created.
With so much uncertainty surrounding investors and portfolio risk, one might think a robust client risk profile questionnaire could clear matters up.
To an extent, that's true. After all, investment advisors need a way to target the best levels or risk management for client investment portfolios, especially in three key areas:
Risk required - The investment risk linked to the return needed to meet client portfolio objectives from disparate financial investment categories
Risk capacity - The level of financial risk the investor can absorb
Risk tolerance - The level of risk that enables the investor to sleep soundly at night.
To calculate those risks, money managers have historically leveraged risk management questionnaires to get the answers they need. But are those questionnaires really the best way to zero in on client investment risk?