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The Myth of Risk Tolerance
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Most financial advisors give clients a questionnaire to determine their risk appetite.  The problem is not only that advisors' own biases inform the results, but industry research reveals clients would have been better off if their advisors had just assumed they had an average risk tolerance.

But even if an advisor could accurately measure your appetite for risk, there is no rule defining how many stocks vs. bonds equals a conservative, moderate or aggressive portfolio.  It's an opinion.  In other words, a conservative client will likely get very different portfolios from different advisors.

PlanningforaFuture.com views risk tolerance differently.  To be conservative is not to own less stocks and more bonds.  To be truly conservative is to put more away, work longer and be willing to withdraw less in retirement.

Aggressive investors want to retire too early, not invest enough and withdraw too much.  A recipe for disaster.

Align risk in the portfolio with when you need the money.  If you are conservative be prepared to save and invest more to reach your goals.

 

<NEXT:  How much risk should you take?>


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