Risk is not about the journey; it’s about where you could end up. It is the risk of money not being there when it’s needed, reflecting both the chance and the severity of poor returns.An investor’s risk tolerance is their willingness to accept the chance of bad final outcomes in the hope of good ones. Risk management is therefore investor-specific, because for an outcome to be bad, it needs to be bad for someone.Risk avoidance isn’t risk management, and forgoing the chance of higher returns is often an excessive price to pay for being more comfortable with short-term turbulence.

Risk appetite questionnaires need not be (indeed, should not be) “elaborate”. Over-engineered and superficially sophisticated ‘revealed preference’ approaches result in exactly the same problem for investors as Kids do for investments: highly unstable reflections of current short-term preferences, not long-term needs.Risk tolerance cannot be accurately assessed by putting complex risk-return choices in front of people, or asking them to choose between possible portfolio outcomes in the distant future. As humans, we simply don’t know how to judge the level of risk we’re prepared to take over the long term.If organisations are to ensure they are providing the right level of risk for their clients, they need to stop pretending that it is possible to arrive at accurate measures of risk for individual investments ‘bottom-up’. The more granularly we try to measure risk, the less credible the measures become.