Are You Risk Tolerant, or Risk Adverse?
A Google search of “risk tolerance” results in numerous risk questionnaires. The surveys can help determine how much risk someone can tolerate by answering a few questions. What would you do if your stocks lost 31 percent of their value in a few months as they did in 2008? Do you prefer investments that fluctuate little in value?
Though the surveys can be good discussion starters, research shows people are generally poor judges of their own tolerance for risk. Most people think they are bigger risk takers than they actually are.
Financial advisors often take a personal approach to determine whether investors really want to take chances. A commonly asked question of investors is how well they sleep at night when the
Take risk temperature regularly
Retirement is another milestone that can radically change an investor’s risk tolerance.
Seattle Sutton, founder of Seattle Sutton’s Healthy Eating—a provider of fresh, delivered meals—doesn’t feel it’s wise to take many risks with her stock portfolio now that she’s almost 85 and hopes to pass along her wealth to her children and grandchildren. As a way to minimize risk, she uses stop-loss orders. Stocks are sold automatically when the price drops below a certain level set by Sutton. “It takes out the emotion,” she says.