The U.S Stock markets have been going gangbuster this month and I am going to suggest this is a great time to reevaluate risk. We measure risk with risk tolerance tools. I have never liked the phrase risk tolerance. Here is the problem: If we give you a test to see what your risk tolerance is we have at least two potential problems. Will the risk score we assign to you be the right one? And if we do get it right, does that mean that we will take you right to the edge of your risk tolerance in a full market cycle? Who wants to feel like they are being dangled off the edge of a cliff as risk tolerance suggests?
Here is another problem. In my experience, everyone scores higher on risk tolerance tests when the market is going up and lower when it is going down. So, you can see why I question the usefulness of risk tolerance questionnaires. In my view, I will only truly understand my client’s appetite for risk by working with them over a long period of time, perhaps a full market cycle, ups and downs. So I have to ask how you are feeling about the markets on an ongoing basis, and regularly revisit the issue of risk tolerance.
That said, now may be an excellent time to discuss your savings and investments, the risks you are taking, and see if that level of risk is appropriate for you. We have great tools and exercises to help you assess your risk. And I think the best way to understand your portfolio and your risks is by having a conversation about it. I welcome the opportunity to discuss your portfolio, the risks and your plans for the future. Let me know if you’d like to talk.
The information provided is for guidance and informational purposes only. The articles are not the opinions of ProCore Advisors, LLC.