I believe not understand risk tolerance is something I often think about. I don’t know how to measure it or understand it unless it actually happens
I am pretty sure that the ratio of your net worth to your annual income is a large factor that should be considered while thinking about risk tolerance. No one can truly imagine the pain of seeing your hard earned portfolio becoming half unless you have actually experienced it.
For example -: if annual income is 100K . Portfolio is 50K then even a 40% crash might not feel that bad
But if annual income is 100K, Portfolio is 500K, a 40% crash can be seriously demoralising. Specially because this would come at a later stage in life
Excess fees: You may have missed this when it slipped by last August: “Secretive Dynasty Missed Out on Billions While Advisers Got Rich.” Two managers of a single-family office siphoned off so much money that each became a billionaire. As Bloomberg News reported, had their advisors followed a simpler, less “audacious” strategy, the family would have ended up $13-17 billion richer.
The reporters did not suggest wrongdoing, but allow me to point out that any advisor, let alone two, who became billionaires while wildly underperforming their benchmarks are obviously not fiduciaries. The article suggests they were more interested in their own financial well-being than that of their clients.
Very instructive overall.
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