• Question
  • Risk Tolerance

    Asked by a 61 year old man from New Lenox, IL on 8/12/2019

    Why does all software and financial advisors ask what your risk tollerance is.
    I beleive that the emotional responce to that question should be left out. It is basic math.
    How much of my porfolio should be in stocks ? I need 2 million dollars to retire, I am 50 yrs old and have $750,000 in my porfloio.
    In order to achive my goal I will need a certain percentage of my porfolio in stocks, my risk tolerance should have nothing to do with it. Yet every wants to know. WHY ?

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  • Categories: Financial Advisors, Retirement Planning

Answers

  • Steve 

    Steve 
    NewRetirement

    San Francisco, CA

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  • Hi,

    Good question: there are actually two components to risk tolerance:

    1) Your financial capacity for risk - ex. most people of "moderate means" should not be investing in super risky investments that could put a huge dent into their savings and materially impact their future quality of life.

    2) Your emotional or behavioral capacity for risk - this is the one that catches most retail investors - they tend to "buy high and sell low" - they get sucked into bull markets and sell out when the market is crashing. This is the reason that this question is asked.

    Many risk profiles only include the emotional question.

    One of the the biggest values that a good fiduciary financial advisor brings is help coaching investors to not hurt themselves during times of market volatility.

  • Login to rate this answer:   Answered on 10/20/2019
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.