Have you ever filled out one of those “what’s your risk tolerance” questionnaires to determine how much money you can accept or tolerate losing in the market?
Brokers are now required to have you do this. Or you may have filled out a self-scoring one online. You know, ones that ask questions like what would you do if the market dropped 10% or 20%?
Well… it turns out these questionnaires are “unhelpful at best and harmful at worst,” according to experts on investing and the psychology of risk.1
Here’s why…
These questionnaires assume your risk tolerance is an integral part of who you are and no more changeable than your IQ or shoe size. But nothing could be further from the truth.
Researchers have shown that your tolerance for risk varies constantly, depending on literally thousands of factors. Studies show how much risk you’re really able to tolerate is associated with many factors such as: [Read more…] “Is risk a four letter-word?”