Managing risk is a fundamental part of every investment strategy, but how do you truly measure a client’s risk tolerance, especially at different points of time in their life? Morningstar’s psychometric questionnaire for risk profiling has been taking more than two million times. Believe it or not, the data shows risk tolerance varies little over time.
Economic downturns make even the most experienced investors nervous, but there are ways to reframe anxiety as excitement. An accurate risk profiler, like the one found in Morningstar’s Advisor Workstation, can help you maintain your client’s trust. No two investors are the same, so it stands to reason no two investors will have the same risk profile. Keep them focused on what they can control and you can help them navigate tough times.
It's essential to understand both a portfolio’s risk exposure and how it impacts the sources of return within that portfolio to answer clients’ tough questions. The Morningstar Global Risk Model is a tool available in Morningstar Direct that allows users to make comparisons across portfolios and benchmarks on a standardized, objective basis. By understanding this data and its implications, financial advisors can help educate clients about their risk exposure and help empower them to make strategic decisions about their portfolios.
Read more about risk below.