Smarter portfolio choices

8.1 Deciding on a sensible portfolio

The next step is to decide which portfolio makes sense for you. You have six portfolios to choose from. This needs a bit of careful thought and Appendices 1 and 2 provide some guidance. In short, you need to identify the following three parameters (see Figure 8.1).

Your risk profile or emotional tolerance for losses

Every investor has an emotional point beyond which it becomes too painful to stay invested. Your risk tolerance is a relatively stable psychometric trait irrespective of market conditions. It can be tested for using a psychometric risk profiling questionnaire – e.g. FinaMetrica (see Appendix 1). Your ‘best fit’ risk score provides insight into where you should ...

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