During a client discovery meeting, Mr. Davies, aged 58, expresses concern about market volatility. He states, 'I want to ensure my portfolio doesn't drop by more than 10% in any given year, even if it means lower returns.' He plans to retire in 7 years. Which aspect of his risk profile is most clearly being communicated?

Question: During a client discovery meeting, Mr. Davies, aged 58, expresses concern about market volatility. He states, 'I want to ensure my portfolio doesn't drop by more than 10% in any given year, even if it means lower returns.' He plans to retire in 7 years. Which aspect of his risk profile is most clearly being communicated?

Answer options: ✅ Risk tolerance

• Risk capacity
• Required return
• Investment knowledge

Correct answer: Risk tolerance

Explanation: Mr. Davies' statement directly reflects his emotional comfort level and willingness to bear investment risk, which is the definition of risk tolerance. He is articulating his psychological limit for losses.