Mrs. Henderson, a 72-year-old widow, has recently received a significant inheritance. Her daughter is urging her to invest in high-growth technology stocks, but Mrs. Henderson expresses concerns about market volatility and protecting her capital. Which of the following is the most appropriate approach for her financial advisor to take regarding risk profiling?

Question: Mrs. Henderson, a 72-year-old widow, has recently received a significant inheritance. Her daughter is urging her to invest in high-growth technology stocks, but Mrs. Henderson expresses concerns about market volatility and protecting her capital. Which of the following is the most appropriate approach for her financial advisor to take regarding risk profiling?

Answer options:

• Educate Mrs. Henderson on the potential for higher returns with growth stocks to align her with her daughter's suggestions.
• Proceed with a conservative investment strategy, solely based on her stated aversion to volatility, without further discussion. ✅ Conduct a comprehensive risk assessment, including her emotional tolerance for risk, financial capacity for loss, and time horizon, to objectively determine her true risk profile.
• Recommend a balanced portfolio that combines some growth stocks with fixed income, satisfying both her concerns and her daughter's wishes.

Correct answer: Conduct a comprehensive risk assessment, including her emotional tolerance for risk, financial capacity for loss, and time horizon, to objectively determine her true risk profile.

Explanation: A comprehensive risk assessment involves more than just stated preferences; it includes an objective evaluation of emotional tolerance, financial capacity for loss, and time horizon to determine a suitable risk profile.