Understanding your true risk tolerance—both what the numbers say you can handle and how you emotionally respond to market swings—is key to building an investment plan you can stick with for the long haul.
Every investment plan rests on one big question: How much risk should you take?
It’s not about chasing the highest returns or avoiding every bump in the market. It’s about striking the right balance, one that gives you the best shot at meeting your goals without losing sleep along the way.
At Allworth, we approach risk tolerance from two complementary angles:
1. Objective risk tolerance – what the numbers say you can afford to risk.
2. Subjective risk tolerance – how you feel about taking on that risk.
Only by blending both can we create a portfolio that works not just on paper, but in real life.
Objective risk tolerance is grounded in the math of your financial life. It answers the question: Given your resources, time horizon, and goals, how much risk can you realistically afford to take?
We consider several factors:
1. Your Age
Time is the most powerful risk-management tool you have. Younger investors typically can ride out market cycles, because decades of compounding work in their favor. Retirees, by contrast, need portfolios that prioritize income and preservation, since withdrawals start now, not 20 years from now.
2. Amount Saved and Invested
If you’ve accumulated substantial savings, you may be able to tolerate more market volatility because your portfolio has more cushion. Conversely, if your nest egg is smaller relative to your needs, preserving what you’ve built becomes more critical.
3. Your Income Needs
How much you’ll need to withdraw from your investments affects your capacity for risk. If you need your portfolio to generate the bulk of your retirement income, we’ll design it with that in mind. If Social Security, pensions, or annuities cover most of your expenses, your investments may have more room to grow.
4. Your Goals
Not all goals are created equal. Funding a grandchild’s college in five years requires a very different risk posture than leaving a legacy 30 years down the road. We look carefully at timing and priority.
In short, objective risk tolerance is about cold, hard facts. But facts alone don’t tell the whole story.
Money is math, but investing is human. Markets don’t just test portfolios. They test nerves.
Subjective risk tolerance asks: How comfortable are you with the ups and downs of investing?
1. How You React to Losses
Some people shrug when markets dip 20%, knowing downturns are temporary. Others lose sleep at 5% declines and feel compelled to “do something.” Your ability to sit tight during volatility is just as important as your financial capacity to handle it.
2. How You React to Gains
This one surprises people. Rapid gains can create overconfidence and tempt risky behavior: chasing performance, concentrating investments, or abandoning a diversified plan. We look at how you respond when markets soar as well as when they fall.
3. Your Personality and Past Experiences
If you’ve lived through market crashes, recessions, or personal financial setbacks, those experiences shape your comfort with risk. Some investors become more cautious, others more resilient. Both responses are valid. We just need to understand them.
4. Your Stress Threshold
Ultimately, a good investment plan is one you can stick with. If your portfolio feels like a rollercoaster, you’re less likely to stay disciplined. And discipline, not timing the market, is what drives success.
At Allworth, we don’t treat risk tolerance as a one-dimensional score. Instead, we bring together the objective and subjective sides into a full picture:
1. Assessment tools – We use structured questionnaires to gauge your comfort with various risk scenarios.
2. Financial analysis – We run projections based on your savings, time horizon, income needs, and goals.
3. Conversations with your advisor – Numbers and surveys are useful, but the real insight comes from talking through your concerns, hopes, and what keeps you up at night.
Think of it this way:
- Objective tolerance defines the guardrails.
- Subjective tolerance determines how fast you’re comfortable driving within them.
Blending the two sides of risk tolerance isn’t just a nice exercise. It’s what keeps you on track. If your investments are too aggressive, you may panic in a downturn, sell at the wrong time, and permanently damage your plan. If your investments are too conservative, you may not keep up with inflation or generate enough growth to fund decades of retirement. By calibrating both, we aim to land you in the sweet spot: invested enough to achieve your goals, but not so aggressively that the journey is unbearable.
And risk tolerance isn’t set in stone. Life changes, markets change, and your comfort level may change too. That’s why we revisit your risk tolerance regularly, especially at major life transitions like retirement, inheritance, or the sale of a business.
We also review it in response to market events. Sometimes volatility reveals that your tolerance is higher (or lower) than you thought. That’s not a failure; it’s feedback we can use to refine your plan.
At Allworth, our goal isn’t to push you toward a certain level of risk. It’s to align your financial reality with your emotional reality, so your plan works in both theory and practice. Your advisor is here to help you understand your true tolerance for risk, balance growth with stability, and stay invested through market ups and downs. That’s how we give you the best chance at long-term success without unnecessary anxiety along the way.
This information is meant for educational purposes and not as direct tax or legal advice. Rules and regulations can shift anytime, so it’s always best to consult a qualified tax advisor, CPA, or attorney for guidance tailored to your specific situation.
All data are from Bloomberg unless otherwise noted. Past performance does not guarantee future results. Investments involve risks, including market, credit, interest rate, and political risks. For more information, please refer to Allworth Financial’s Form ADV Part 2.
Past performance may not be indicative of future results. Asset allocation does not ensure profits or guarantee against losses; it is a method used to manage risk. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment, investment allocation, or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by Allworth Financial), will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Advisory services offered through Allworth Financial, an S.E.C. registered investment advisor. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Allworth Financial is an Investment Advisor registered with the Securities and Exchange Commission. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC.