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
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:
- How an investment has been described to you
- Where you got the money you are investing
- What culture you come from
- Whether (if you’re a man) a woman recently touched you on the shoulder
- How much you weigh
- What time of year it is
- Whether you lost a loved one through death or divorce in the last few years
- And many variables
The notion that anyone can measure your risk tolerance by asking you a few questions is ridiculous”
The reality is we won’t really know how we’ll respond to risk until the you-know-what hits the fan and it’s too late.
I’d be willing to wager that before people lost half of the value of their nest-egg when the markets crashed in 2008, they “thought” they could tolerate that risk.
Or, more likely, they didn’t even think about the possibility of a second major crash within a decade.
Which is one reason “risk” is a four-letter word…
As an interesting aside, although a Federal report in March claimed that Americans had regained much of the $16 trillion they lost from 2007 to 2009, a new report from the Federal Reserve Bank of St. Louis found that, after adjusting for inflation and other key factors, the average household has actually recovered only 45% of their wealth.
And here’s another reason “risk” is a nasty word: In spite of Wall Street’s insistence we have to risk our money in the market to get returns that will outpace inflation, it’s a great big LIE!
The financial plans of the hundreds of thousands of people who use the Bank On Yourself wealth-building method never skipped a beat. Their money continued growing safely and predictably, and all of their principal and growth from day one was locked in.
They beat inflation by a substantial amount, but without the risk or worry of stocks, real estate and other volatile investments. (Check out these reviews of Bank On Yourself by people just like you.)
Wouldn’t you rather know that at least a good portion of your savings will grow safely and predictably every single year…
…No matter what – then wake up bewildered in ten or 20 years thinking, “Uh oh. Maybe I shoulda’ moved ahead with ‘Plan B’ back then…”?
If so, and you haven’t already added the guarantees and predictability of the Bank On Yourself method, why not request a FREE Analysis that will show you how this proven method that hasn’t had a losing year in over 160 years can help you reach your goals and dreams.
One more thing. Have you ever seen the video of Suze Orman and Dave Ramsey discussing Bank On Yourself? If not, you don’t want to miss it!
Great article on risk and assessing risk within your own financial means. Thank you for sharing.