There is no unique, riskless asset, since all investments carry a risk of some type. However, by convention or proxy, federal government securities are considered risk free. For many years T-bills were considered the appropriate risk free investment against which to measure investment performance. However, the more sophisticated analysis that is supported by modern portfolio theory suggests that better investment decisions can be reached when one assumes that there is one riskless asset for each selected investment horizon. For example, an investor with a 20 year time horizon would use a twenty year government of Canada bond as the appropriate risk free asset against which to measure portfolio returns.

The following concepts and techniques assist in gaining a better understanding of an individual's perceptions of investment risk as a whole, which can be used when determining the individual components that will eventually comprise a portfolio.

1. Demographics.

• Men will usually accept higher risks than women will.
• Risk tolerance decreases with age.
• Risk tolerance increases with wealth, income, and education.