The Concept of Risk Tolerance in Personal Financial Planning
Hanna, S. D., Waller, W., & Finke, M. (2008). The concept of risk tolerance in personal financial planning. Journal of Personal Finance, 7 (1), 96-108.
19 Pages Posted: 8 Sep 2011 Last revised: 1 Jul 2021
Date Written: September 6, 2011
Assessment of risk tolerance is fundamental to proper asset allocation within a household portfolio. It is also a frequently misunderstood concept and difficult to measure practically. We discuss the relationship between risk aversion and portfolio recommendations based on an expected utility approach, review selected empirical research on risk tolerance, and propose to separate risk capacity, expectations, and other factors from the concept of risk tolerance.
Keywords: risk tolerance, financial planning, household finance
JEL Classification: D11
Suggested Citation: Suggested Citation