Post by Valley Financial Group & Billy Wolfe Jr.
Although formally it is a relatively modern industry, the financial services have been around ever since money came into being. In the thousands of years since that first farmer asked his neighbor for money advice financial planning has evolved into a profitable industry built on the studies of markets, money, and human behavior. For the majority of that long period of time, financial planning was done majoritively individually or at the most with some close family or friends. Investment strategies were more privatized and only trusted friends' advice was heeded, but that all changed in in 1969, with Loren Dunton and The Society for Financial Counseling Ethics. This organization became the foundation of the entire financial planning industry, and its inaugural meeting of just 13 individuals in a conference room at the O'Hare airport in Chicago grew to over 98,000 certified financial planners (CFPs) by just 2005.
The financial services had jumped from the stone age to modernity in the blink of an eye, and now everyone had access to professional assistance in regards to their finances that was only a call, click, or visit away. Planners would continue to adapt as the years rolled by, the most recent of these adaptations being the study of behavioral finance, which combines cognitive and behavioral psychological theory with the study of economics and finance to allow us to understand the "why" behind the rational and (more importantly) irrational decisions of the consumer and investor.
This relatively new branch of economic thought challenges the previous financial theories that consider all consumers to be rational "wealth maximizers", without taking into account the buyers emotions or any other extraneous factors. Irrational behavior such as the humongous sales numbers of lottery tickets, with each ticket having roughly a 1 in 146 million chance to hit the jackpot, caused psychologists Daniel Kahneman and Amos Tversky, as well as economist Richard Thaler to think beyond the numbers and graphs of conventional economic theory, laying the ground work for the study of behavioral finance.
Risk tolerance is a crucial factor in personal financial decision making. Risk tolerance is defined as individuals willingness to engage in a financial activity whose outcome is uncertain. Now, your financial planner can help you make the best decision for your money and your family based on far more than just a spreadsheet, but also an intimate knowledge of the current market and how its highs and lows will affect the reaction of each and every individual player.
Take the Riskalyze test today to see what your risk tolerance level is.