Risk profiling is a process followed by professional financial advisors to assess the risk appetite of the client usually through a questionnaire. This not only helps you get an idea of how much risk you can take(based on age, liquidity and portfolio size etc) but also how much of risk you are willing to take. A lot of times we tend to either over estimate or under estimate our risk tolerance which eventually leads to bad investment decisions. High returns come at a higher level of risk and so this understanding of the risk- return trade-off is very important.
Cushioning against Contingencies