These characterizations often don’t hold up when investors describe their investment holdings, decision making and philosophies: Many self-described moderate investors are actually conservative in their investment decisions and portfolios. And many self-described aggressive investors follow a mixed approach to capital preservation and growth that puts them in the moderate camp, Spectrem found.
“There is a limited correlation between how investors describe their risk tolerance and how they actually make investment decisions,” says George H. Walper Jr., President of Spectrem Group. “A much more accurate gauge of risk tolerance is an investor’s primary goal of growing assets or protecting them, followed by the investor’s time horizon, with shorter timetables leading to more conservative investments.”
This dichotomy between what investors say their risk tolerance is and what they do cuts across the three wealth segments—Mass Affluent, Millionaire and Ultra High Net Worth—as well as professions and age groups. Investors’ actual risk tolerance affects their willingness to change advisors, move assets after the loss in a single year or multiple years and even how they evaluate investments, with conservative investors more focused on the potential downside and aggressive investors more focused on the potential gains.
Additional insights about wealthy investors’ risk tolerance can be found at Spectrem’s Millionaire Corner, including:
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