The traditional approach to evaluating risk tolerance - which has been enshrined into our standard regulatory process for determining the "suitability" of a recommendation - involves gauging a client's attitudes about risk, their financial capabilities to take risk (e.g., time horizon, need for income, and availability of other assets), and mixing them together into a composite score that can be assigned to a portfolio. A strong attitude and financial ability to take risk gets a high score and an aggressive portfolio, a poor attitude for risk and significant portfolio needs result in a conservative portfolio, and a mixture of the result leads to a moderate growth portfolio in the middle.
http://www.kitces.com/blog/separating-risk-tolerance-from-risk-capacity-just-because-you-can-afford-to-take-risk-doesnt-mean-you-should/
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