The Rational Reminder Podcast · Thursday, July 9, 2026
Dr. Paul Kaplan highlights the crucial distinction between risk tolerance and risk capacity in financial planning. He notes that these concepts are often conflated in common practice, but they are fundamentally different and both are important inputs into life cycle models.
“So the risk tolerance that we use in the life cycle component is also the same risk tolerance that you use in the asset allocation part of the model.”
“And risk tolerance is something very distinct from risk capacity. We could talk more about that, how in common practice, risk capacity and risk tolerance are often conflated, but they're really very different concepts.”