What is risk tolerance and how does this affect your finances?

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Risk tolerance is affected by having the emotional ability to withstand losses and having the financial capacity to withstand losses. This creates a unique risk tolerance for you.

Life is kind of like a football game. The first quarter you’ve got different objectives, the second quarter you might be planning for a child’s college education, and there are little things that can happen in each quarter that can either define the game or you adapt to them and overcome them. Sometimes you have times where you are doing everything correctly, yet you still have something happen that you weren’t planning for. The key here is how you respond to this.

We’re living a lot longer and we have to worry about running out of money. In a recent study from MIT, a married couple both age 65 has a 36% chance that one of them will reach the age of 95. This is extremely important to keep in mind when planning for retirement, as it is important to adjust asset allocation properly. If you get too conservative too early, you will be a risk of running out of money.

Chuck Conrad is a Senior Financial Planner with Szarka Financial, concentrating in transition planning, wealth coaching, and qualified retirement plans. Two of Chuck’s passions are helping others and lifetime learning. Chuck is also a co-author of a new book Money Talks: Life Lessons to Help You Plan Now, Save Wisely, and Retire Well.