Shin’s statement that the family has a very substantial ability to assume risk is correct, but he is incorrect to claim that the portfolio should be constructed in accordance with their ability to assume risk without resolving the conflict with their low willingness to assume risk). When the investor’s ability and willingness to assume risk are in conflict, the curriculum always recommends designing portfolios consistent with the willingness, not ability, to assume risk. Yoo is correct that there is an inconsistency in the stated risk tolerance – not increasing the risk of the portfolio above that of interest-bearing bank accounts – and the goal of investing in the stock market, and that educating the client is required. Since the willingness to assume risk is inherently in conflict with the stated objective of investing in equities (which cannot duplicate the low risk of interest-bearing bank accounts), there is no way around having to educate the family to resolve the conflict |
