Knowledge Tree
Relations (1)
related 2.00 — strongly supporting 3 facts
Worry directly influences risk tolerance, as increased anxiety regarding an investment lowers a client's risk tolerance [1]. Financial planners manage this relationship by matching a client's risk tolerance with appropriate asset allocation strategies to mitigate the negative impacts of worry [2], [3].
Facts (3)
Sources
Understanding Behavioral Aspects of Financial Planning and Investing financialplanningassociation.org 3 facts
procedureTo mitigate the bias of worry, financial planners should match a client's risk tolerance level with a pre-determined asset allocation strategy.
procedureTo mitigate the negative impact of worry on investment decisions, financial planners should match a client’s risk tolerance with a pre-determined asset allocation strategy. If a client loses sleep due to anxiety about common stocks, planners should advise them to own more conservative securities to hold a less risky portfolio.
claimA higher degree of worry regarding a specific security, such as a stock, increases the perceived risk of that security, lowers the client's risk tolerance, and increases the likelihood that the client will avoid investing in that security.