How much investment risk can you actually handle?
Many investors discover their true risk tolerance during market declines rather than through hypothetical scenarios. They watch their portfolio values drop 20% or 30% and realize they can’t sleep at night, or they find themselves comfortable with volatility they thought would cause panic.
You may have experienced the disconnect between how much risk you thought you could handle and how you actually felt when markets turned volatile. Or you’re unsure whether your current portfolio matches your risk capacity, wondering if you’re taking unnecessary risks or being too conservative.
Risk tolerance encompasses two dimensions: your emotional ability to withstand portfolio volatility without making reactive decisions, and your financial capacity to absorb losses without jeopardizing objectives.
Without understanding both, you risk:
Your risk tolerance shifts as you move from accumulation to retirement, as wealth changes, and as life experiences shape your perspective on volatility.
Understanding your true capacity for investment risk—both emotional and financial—shapes every portfolio decision you make.
High-net-worth individuals often need growth to combat inflation and fund long-term goals while also wanting stability. Risk tolerance assessment helps find the balance point, determining how much equity exposure you need to meet objectives and how much fixed income you require to sleep soundly.
When your portfolio's risk level matches your true tolerance, you can stay committed through market swings rather than disrupting plans with emotional reactions that exacerbate losses. This alignment means your investments get time to work.
Regular risk assessment helps you understand when your comfort or capacity has changed, allowing portfolio adjustments that keep your investments aligned with your current situation rather than past circumstances.
Risk Capacity Analysis: We evaluate your complete financial picture—goals and timelines, age and years until retirement, income stability, existing asset base, and how portfolio losses would impact your security. This identifies both your emotional comfort with volatility and your financial capacity to absorb losses.
Risk Identification: We identify specific vulnerabilities—concentration risk from single positions, sequence of returns risk when approaching retirement, inflation risk from excessive conservatism, liquidity risk from illiquid holdings, and longevity risk from insufficient growth.
Portfolio Guardrails: We establish predetermined allocation ranges that trigger rebalancing, maximum drawdown levels that prompt strategy discussions, and principles about when to stay the course versus when circumstances warrant changes.
Asset Allocation Recommendations: We translate your risk tolerance into specific portfolio recommendations. For high risk tolerance and long horizons, this might mean substantial equity exposure. For low tolerance or near-term needs, more conservative positioning. Most investors require customized allocation to balance their comfort levels with actual financial capacity.
Our team holds credentials including the CERTIFIED FINANCIAL PLANNER™ designation and has over 40 years of combined experience helping clients understand their true risk tolerance and maintain discipline through volatile markets.
NOTE
Securities through Valmark Securities, Inc., member FINRA, SIPC. Investment Advisory services are offered through BPM Wealth Advisors, LLC and/or Valmark Advisers, Inc. a SEC Registered Investment Advisor, with address of 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431, and telephone number +1 (800) 765-5201. BPM LLP and BPM Wealth Advisors, LLC are entities separate from Valmark Securities, Inc. and Valmark Advisers, Inc. Form CRS Link
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