Knowledge Tree
Relations (1)
related 2.00 — strongly supporting 3 facts
Risk tolerance and risk perception are intrinsically linked as core components of the investment decision-making process [1] and are both essential factors to identify when developing an effective long-term investment strategy [2]. Their relationship is further highlighted by their joint treatment in academic literature, such as the chapter authored by Ricciardi and Rice [3].
Facts (3)
Sources
Understanding Behavioral Aspects of Financial Planning and Investing financialplanningassociation.org 3 facts
procedureAn effective long-term investment strategy involves identifying a client's level of risk tolerance and risk perception, determining an appropriate asset allocation strategy, and rebalancing the client's portfolio on a yearly basis.
claimUnderstanding a client’s level of risk perception and risk tolerance is an essential component of the investment decision-making process.
referenceVictor Ricciardi and Douglas Rice authored the chapter 'Risk Perception and Risk Tolerance' in the 2014 book 'Investor Behavior—The Psychology of Financial Planning and Investment,' edited by H. Kent Baker and Victor Ricciardi.