Risk Tolerance

Example 1:

To determine the risk tolerance of the investor based on this hypothetical information, we need to analyze their investment journey:

Analysis:

The initial decline from Rs. 1 crore to Rs. 50 lakhs indicates the investor experienced a significant loss, suggesting some level of risk-taking willingness.
The subsequent substantial growth to Rs. 3 crore shows resilience and capacity to recover from losses.

Estimate of risk tolerance:

The investor demonstrated both the capacity for risk (accepting a 50% loss) and the willingness to ride out volatility for higher long-term gains.

Likely risk tolerance:

This investor probably exhibits a moderate risk tolerance, likely around 40-60%.

Example 2:

To determine the risk tolerance of the investor based on this hypothetical information, we need to analyze their investment journey:

Analysis:

This investor experienced significant growth over the years, but also faced a notable decline. The ability to endure the dip from Rs. 3 crore to Rs. 2 crore suggests they have some capacity and willingness to accept volatility and losses.

Estimate of risk tolerance:

Given the substantial growth, the investor seems comfortable with higher-risk, higher-reward investments.
The drop in value indicates they are not strictly risk-averse, as they remained invested despite the downturn.

Likely risk tolerance:

This investor probably exhibits a conservative risk tolerance, likely around 20-40%.