Buena Vista, Colorado (PressExposure) November 04, 2009 -- Peopleâs Financial Advisor (PFA) [http://www.peoplesfinancialadvisor.com] , a leading provider of online fiduciary financial planning services, today unveiled the use of the Cambridge Risk Assessment tool which is based on endogenous factors to assess clients appropriate investment risk exposure.
Mr. Robert Schumann, Chief Advice Officer at Peopleâs Financial Advisor explains: âRisk Tolerance is the amount of risk that an investor wants to take or believes he can take. Risk Capacity is the amount of risk that an investor can afford to take without risking his standard of living as measured by exposure to ten endogenous risk factors. We believe that the risk exposure in your portfolio should match your risk capacity. Emotional risk tolerance is just one of the ten factors used to measure your risk capacity.â
Cambridge Risk Assessment process begins with receiving client answers to simple questions, some related to financial markets and other to the clientâs ability to manage financial distress. The process continues with calculating a proprietary risk score on a scale of -10 to +10. The score is used in conjunction with the clientâs overall Financial Position in determining a most appropriate allocation of interest earning and equities type assets.
Mr. Schumann added: âDuring the online interview we asked a number of questions designed to help us calculate your risk capacity. For example, if you are at risk of losing your job in the next 10 days and have no other source of income, you probably cannot afford to take much risk with your investments no matter how much of a daredevil or gambler you may be. You may soon need that money to buy groceries and pay your mortgage. On the other hand, if you are retired with a life expectancy of more than 30 years and a portfolio less than 15X your living expenses, you probably need to take some risk with your investments in order not to outlive your portfolio. If you have two sources on income you can take more risk in your portfolio than if you have only one.â
Mr. David Ron, Co-Founder & CEO of Peopleâs Financial Advisor said: âWe ask our clients simple questions and considering their financial position tell them if they should reduce their risk capacity, increase it or remain as they are. We donât ask people for the level of risk they are comfortable with - we tell them the level of risk they should assume.â