Risk Profiling and Scoring
In this chapter, we will look at ways to quantify risk for investments and how to score risk appetite for investors. Once we establish some key concepts such as risk tolerance and risk capacity, we will look at examples of potential risk questionnaires and put them all together to calculate a risk score. These form the basic mechanisms for investor protection to ensure any investments made are suitable for the investor. The risk score is what we will ultimately use to determine which investments are appropriate, which is calculated based on inputs provided by the investor in the risk questionnaire. This chapter will tie in with the following two chapters that will ultimately allow an investor to decide on an investment plan.
In this chapter, we will cover the following topics:
- Key concepts in risk profiling and scoring
- Creating and answering a risk questionnaire
- Calculating a risk score
