Willingness to accept Risk.

In fact total loss of capital is not a realistic possibility for most of the investments that a private investor would be looking at yet, to most people, risk means the possibility of total loss. "Volatility " much better describes the risk associated with investment.

For example, a particular adventurous investment might double in value over three years but, after the first six months, it might have halved. So, the end result is extremely satisfactory, but is no good to you at all if you would have panicked at the six month point and sold the investment at a 50% loss.

       
       

Can you live with volatility in the interest of longer term potential (which might not materialize)? If so, how much volatility can you accept? If not, then you must sacrifice "potential" extra returns in the interst of peace of mind.

Investment attitude is normally expressed on a scale of 1 to 10. Most people would put themselves between 4 and 6 - i.e. they have a "balanced" approach to investment. This does not mean that any selected investment must fit in the 4 to 6 range because equal amounts at 2 and 8 give an average 5. The idea is to build a portfolio which overall suits you.