One would expect that in the area of risk tolerance, as in most things, people would fall into some sort of bell curve, with only 10% of us being "out there" on the far end of the risk scale, betting it all on the stock market, wouldn't you? But, as evidenced by recent events, it seems that maybe 90% of us are out there on the high end of the risk scale, even those who by their circumstances (already retired, for example) should be at the low extreme end of the scale.
I submit that there's something seriously wrong with the risk tolerance model. The questions they're asking in those surveys need to change, somehow. What they really need to be asking about is our "loss-tolerance".
"How will you feel when you wake up one Christmas morning, and $350,000 of your $Million retirement fund has just disappeared?"
"How long do you think you'd have to put off your retirement if your income from your portfolio was only 70% of what it was last year?"
"What will you do when you find out that the last five years of your 401K contributions made no difference to your balance - it's basically gone?"
You see, these types of questions would perhaps more accurately allow financial planners to pick the best investments for folks, and avoid a heck of a lot of whining by those who:
"don't mind a lot of volatility",
"are willing to take a risk to get a higher long term return",
"have a long-haul, buy-and-hold investment philosophy",
and "can ride out the market's ups and downs"
I'm just sayin'.
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