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How to Align Your Risk Tolerance with Your Financial Goals and Stay the Course in Troubling Times Thumbnail

How to Align Your Risk Tolerance with Your Financial Goals and Stay the Course in Troubling Times

How to Align Your Risk Tolerance with Your Financial Goals and Stay the Course in Troubling Times

Risk tolerance is the amount of loss or volatility an investor is comfortable with in the value of their investments. Investors with a high-risk tolerance tend to invest more aggressively in riskier assets, such as stocks or real estate, with the goal of achieving higher returns in the long term. In contrast, investors with a low risk tolerance may prefer to invest in more conservative asset classes, such as bonds, CDs, or cash equivalents, that are more predictable or stable but have a lower potential for return. The amount of risk you can tolerate will play a significant role in determining which investments you choose and your ability to build wealth. Savvy investors are aware of their risk tolerance and have a plan to stay on course to meet their financial goals, even during uncertain times when they might be tempted to make rash decisions. 

Two Types of Risk to Balance

There are numerous types of risks in investing, but this article will focus on two of the most prevalent: market risk and the risk of not meeting your goals. Market risk encompasses shallow risk, the short-term risk of losing money in the stock market due to market volatility, money that can be recovered in several years, and deep risk, the long-term risk of losing money in the stock market that cannot be recovered. 

Deep risk can be mitigated by diversifying your investments, such as by investing in index funds or mutual funds, so that you are not putting a large portion of your portfolio in a single stock or industry. Meanwhile, shallow risk can be mitigated only by investing money that you will not need for several years so you can wait for the market to recover. Some degree of market risk is unavoidable, but the types of investments you purchase and the investment strategies you use can increase or decrease your exposure to market risk and the returns you can expect. However, if the fear of market risk leads you to invest too conservatively or not to invest as much as you otherwise would, you will likely encounter a different type of risk, the risk of failing to reach your financial goals in the timeline you have set. Balancing these two types of risk is essential to investing wisely. 

How to Stay the Course During Troubling Times

1. Determine Your Risk Tolerance Threshold

Every individual has different preferences and comfort levels regarding risk. Those preferences and comfort levels are influenced by the individual’s personality, financial knowledge, and experiences. Risk is inherent in investing, but it is important not to take on more risk than you can handle, both financially and emotionally. This fact means you need to determine how much volatility you can see in an investment’s value without panicking and selling the investment before you planned, thereby locking in the loss. Various risk tolerance assessment tools are available online or through financial advisors to help you obtain a sense of your comfort level with market fluctuations.

2. Identify Your Financial Goals

It is equally important to clearly establish your financial goals and the timeline in which you want to achieve them. Having well-defined goals will allow you to run calculations to project whether your current investing strategy will enable you to achieve that goal. If you find that your strategy will not work, you can course correct and set yourself up for success. You may find that the risk you are comfortable accepting is too low and dramatically slows your progress. If that is the case, you can work on increasing your risk tolerance in several ways, such as by learning more about riskier investments and how they can be used wisely or by working with a financial advisor who can talk you through various investing strategies that may meet your needs. 

3. Create an Investing Plan and Work with a Financial Advisor

Once you have determined your risk tolerance and financial goals, you are prepared to make and implement a plan for your investing that includes sufficient market risk to allow you to meet your goals without taking on more risk than necessary. Many investors want or need additional support in creating and implementing a financial plan. These investors find immense value in having a trusted financial advisor who can keep them accountable and offer guidance while they work toward achieving their financial goals. A financial advisor can help at every step of the investing process, from identifying your risk tolerance to creating and implementing a sound investment strategy to meet your goals. A financial advisor also can serve as a voice of reason when you are tempted to make poor financial decisions out of fear. Furthermore, experienced financial advisors are well-versed in helping clients navigate bear markets thanks to their experience in guiding clients through them. A financial advisor has the knowledge, skills, and resources to guide you through market downturns and uncertain economic times. 


Balancing market risk with the risk of not meeting your goals is a continual process that requires self-awareness and strategic planning. By identifying your risk tolerance, clarifying your financial goals, and working with a financial advisor to create and implement an investing plan, you can face market fluctuations with confidence and resilience. 

If you want to learn more about the stock market, risk management, and how investing can help you achieve your financial goals, you will likely benefit from working with a trusted financial advisor. Business & Financial Strategies (BFS) employs a team of talented and experienced financial advisors who would be glad to meet with you for an initial twenty- to thirty-minute in-person or virtual conversation about your financial goals. Financial advisors provide personalized guidance tailored to help you create, implement, and maintain a strategic, comprehensive financial plan that aligns with your goals, time horizon, and risk tolerance. BFS has offices in the Iowa City/Coralville area, Kalona and Fairfield, Iowa, but its advisors serve clients from all around the United States. 

To learn more, please call 319-358-7700 or visit www.BFSFinancialPlanning.com to schedule a complimentary initial conversation.

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