Accounting for an investor's time horizon needs a rethink now that investments are no longer closely tied to singular investment objectives.A specific subset of investible assets may have a time horizon, but the notion of a single time horizon is nonsensical when applied (as it often is) to an investor’s holistic situation. Each investor has multiple time horizons, because they have multiple withdrawal points and multiple goals.Good risk capacity measurements manage time horizons automatically.



Increased complexity is a cost that the new benefits need to justify. What are the costs and benefits of your cost-benefit analysis? Too often, cashflow modelling introduces additional costs for little to no additional benefit. A cashflow process is not an end in itself.Complex stochastic models still do not tell you what you need to do, what you really want to know, and can inspire misplaced confidence.A simple model that supplements and supports, rather than dictates the terms of, the adviser-client relationship, and that works dynamically to encourage flexible responses to events, not complex predictions of them, is the real sophisticated solution to the cashflow puzzle.



If you start with high risk capacity, then after a fall in the markets your capacity gets even higher. If you start with low capacity, then lower market values means an even lower capacity. If those changes are large enough, then the risk profile could change enough to justify a portfolio change.If you’re taking withdrawals but happen to have a high risk capacity, you needn’t worry: market falls become an opportunity to increase risk, not something to protect against.Whether the investor is in the position of a market fall being a threat, an opportunity, or a matter of total indifference, the answer to what to do should be systematic: clear, concise, and calculated; it is driven by risk capacity.



If the risk that you’re willing and able to take is not enough to get you to your goals, then any use of ‘risk required’ implies taking more risk than you’re either able or willing to do. This isn't wise.The amount and time horizon of each goal should form part of a comprehensive assessment of risk capacity; an investor’s goals should already be accounted for in any good assessment of the risk the investor is able to take.A high risk required, i.e. a high reliance on growth in one’s investments to meet one’s goals, is actually a sign of low risk capacity, and should logically lead to a reduction in risk. A low risk required may indicate that you don’t need to take as much risk, but equally, it could mean you haven’t fully accounted for how your spending needs and aspirations may change.



By conflating risk tolerance with behavioural risk attitudes, advisers will potentially replicate (or optimise for) all the silly things investors do already, rather than helping to mitigate and control investors’ more-destructive tendencies.A common failure of risk profilers is to try to elicit separate measures of tolerance for different subcomponents of a client’s overall wealth.If we genuinely want to determine the right amount of risk, it is not sufficient just to measure risk tolerance. It is also not sufficient to supplement this with a narrow model of risk capacity. We also need to help people understand, articulate and dynamically adapt their future goals, plans and aspirations over their journey.