Part 5/9:
While understanding how much risk you can psychologically tolerate is crucial, what about your financial ability to take risk? Felix identifies three factors that govern risk-taking ability:
Time Horizon: The length of time until you need to access your funds directly impacts risk capacity. Longer horizons allow for greater risk exposure.
Liquidity Needs: Ongoing requirements for cash from your portfolio limit risk-taking options.
Capacity to Absorb Losses: How much of a financial loss you can endure without affecting your lifestyle is critical.