Diversification
It does not remove risk, but it can reduce dependence on one outcome.
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Risk Appetite
It helps prevent investments that look attractive but feel unbearable during downturns.
Definition
Risk appetite describes how much uncertainty or loss an investor is emotionally and financially prepared to accept.
Case Study
An investor who panics at a small fall may need a more conservative allocation than expected.
Historical Reference
Risk profiling became common as advisory practices moved toward suitability-based recommendations.