Broker Check

Willingness to Take Risk vs. Need to Take Risk

May 15, 2014

Understanding an investor’s emotional ability to handle risk in their portfolio is very different than determining what their actual need for risk may be.  Often times if a higher rate of return is required to meet an investor's financial needs, then a riskier portfolio might be required.  The investor who needs higher returns will generally have to invest a larger percentage of their portfolio in riskier assets such as stocks in order to generate returns sufficient for their income needs.  Conversely, the investor with a lower income need can invest a smaller percentage in stocks, thus taking on less risk in their portfolio. 

The distinction between one’s willingness to take risk and need to take risk is critical and a proper assessment of both will go a long way towards an investor reaching their financial goals.