Risk Tolerance

In this video, Wealthquest advisor Adam Day helps investors think about risk in a rational, balanced way. With all the volatility in the market caused by the movements of high-profile stocks like Tesla, Gamestop, and Bitcoin, this is an extremely timely topic to talk about.

When you hear your friends, neighbors, and everyone else you know talk about such investments, it’s easy to feel a sense of FOMO – Fear Of Missing Out.

You begin to question why you aren’t a part of the trend. What if you had bought some stocks? Should you have bought some Bitcoin? Is this a once-in-a-lifetime opportunity?

When you have these thoughts, it’s important to practice some mindfulness and ask yourself where these emotions are coming from. Are they coming from a place of fear? A place of anger from having missed out on past opportunities? Something else?

Most importantly though, you need to understand your level of risk tolerance, which consists of three factors.

First, there’s your need to take risks. Do you need to take more risks out of necessity, because you set very high goals, or for some other reason?

Second, you need to consider your ability to take risks. Based on your current financial and personal situation, are you able to make a decision with this level of risk?

Last but not least – and this is the factor that most people think about when discussing risk – there’s your level of comfort with taking risks. How comfortable are you experiencing the stress that comes from the ups and downs of a particular stock’s movements?

By using these three factors in tandem, you can determine if an investment decision or strategy is right for you.

Best of all, this process will ensure that you’re making your decisions based on reason rather than emotion.