Taken together, these make up what’s called your Risk Appetite.

Personal attitude to risk is hard to measure and can be changeable, what feels comfortable one day might not the next. Ask yourself what would happen if you lost some or all of the money you’re putting into investments. This will depend on your circumstances and how much of your money you’re investing. Think about people who depend on you financially and any other important financial commitments you need to be sure of meeting.

Your saving and investing choices will depend on your goals and timescales. The bigger your goal in relation to the assets or income you wish to invest, the greater the rate of return required to beat inflation and hit your goal. Taking no volatility risk at all might make your goals impossible to achieve, taking too much might lose you your investment.

If you have a short-term goal your appetite for volatility risk would usually be low and cash products will be the best place to invest. You don’t want to be worrying about the state of the financial markets when you need your money to be readily accessible. However, cash savings run the risk of not keeping up with rising prices (inflation risk).

With longer-term goals, it’s more usual to put your money into investments that have a better chance of giving you inflation-beating returns, such as shares, but which carry the risk of prices going down. A longer time frame gives your investment more time to recover if it falls in value.

So, if you have a long-term goal it makes sense to be prepared to take on volatility risk for the opportunity of higher returns. However, as a long-term goal moves closer the risk balance should change. For example, you might want to start moving into less volatile assets a few years before the goal date, to start ‘locking-in’ gains, and to protect your investment against events like market falls.

At any one time, you might have a mixture of short-term or critical goals for which you want low volatility (such as saving up to move house), and some non-critical or long-term goals for which you have a higher appetite for volatility (for example, saving into a treats fund, or saving towards retirement).

As part of the Fact-Finding process, we will explore all aspects of investment risk with you to determine the most suitable investments for your circumstances.

Once we have determined you preferred approach, we will allocate one of our six Risk Profiles to each of your goals. This will range from” No Risk to Capital” to “Adventurous”. This could include a more adventurous approach longer term savings such as pensions, but a more cautious approach to School Fees, for example.

This is a different concept from Risk Appetite and Risk Profiling.

Our regulatory body The Financial Conduct (FCA) has explained an individual’s capacity for loss as

“the customer’s ability to absorb falls in the value of their investment. If any loss of capital would have a materially detrimental effect on their standard of living, this should be taken into account in assessing the risk that they are able to take.”

Although quite difficult to quantify, we will explore this very important matter with you before providing our recommendations.