When developing investment recommendations, a financial planner must assess a client's risk tolerance. Which of the following is an example of an objective measure of risk capacity?

Question: When developing investment recommendations, a financial planner must assess a client's risk tolerance. Which of the following is an example of an objective measure of risk capacity?

Answer options:

• Client's stated comfort level with market volatility
• Client's historical investment behavior during downturns ✅ Client's ability to absorb investment losses without jeopardizing financial goals
• Client's preference for growth over income

Correct answer: Client's ability to absorb investment losses without jeopardizing financial goals

Explanation: Risk capacity is the objective ability to take on risk, which is determined by factors like financial resources and time horizon, rather than subjective preferences or feelings.