One of the key determinants of what your asset allocation should be and which investments you use to express it is your risk appetite. But determining this is not so easy, and a reason why many investors over- or underestimate the amount of risk that is appropriate for them.
Three main attributes determine your risk appetite: your personal attitude to risk, how much risk you need to take to achieve your investment goals, and your capacity for loss – how much you can afford to lose.
"Understanding what risk to take when investing is a hard thing to do without guidance because taking on too little or too much risk can be dangerous," says Charles Calkin, financial planner at James Hambro & Co.