How would you rate your risk tolerance? Are you the kind of person who would happily opt for ‘double or nothing’ on a TV game show if you’d won the value of your home, or do you prefer to forsake the chance for greater reward in return for peace of mind and a greater degree of security?
There is no right or wrong answer, but being aware of what your tolerance to risk is, and how that compares to that of your partner can be a key part of the Serenity Financial life planning process.
This does not simply relate to investment planning – it can have a dramatic effect on the dynamic of the actual relationship when couples come to discuss their vision for the future.
Often partners feel their attitudes to risk vary greatly, and that this can be a cause of disharmony and tension. What can often help is understanding the stories and circumstances which have shaped these attitudes. While one partner may have had a very steady upbringing where they were encouraged to take risks and rewarded for doing so, the other may have suffered a huge financial loss in the family. In other cases we have worked with couples where one has lost a parent at a young age, encouraging a ‘live for the moment’ approach, whilst the other has experienced the loss of the parental business and family home, resulting in a deep-seated need for financial security.
Simply understanding the difference can help couples to come to a new understanding and create new dialogues when they make decisions about their future. It can also illustrate the balance that these different approaches can bring to a relationship.
Putting you to the test
What is often very interesting, however, is that the answer you gave to the very first question, is often wrong. When you go through the Serenity Financial process, we use a market leading risk profiling tool, Finametrica, to determine your first level risk profile using behavioural psychology and subtle questioning. We then couple the results from this exercise with the information we have learned about you through the life planning exercises, your personal audit and our discussions, to accurately assess your risk tolerance.
Very often we find that people are not as keen on risk – or averse to it – as they first suppose. In fact, the couple whose opposing life stories suggested they had very polarised approaches to risk were actually, in reality, both very much in the middle of the spectrum.