How to Determine Your Risk Tolerance
Big Picture Retirement®
Devin Carroll
4.7 • 546 Ratings
🗓️ 19 February 2024
⏱️ 22 minutes
🧾️ Download transcript
Summary
In this episode, we explore an unrefined, yet accurate, approach to determining your risk tolerance.
Beyond traditional risk tolerance questionnaires that often fluctuate with market conditions, we introduce two key criteria:
Freak Out Number - Discover how to assess your decline tolerance in dollar terms, examining at what point you'd feel the need to make significant changes to your portfolio. We address the impact of market fluctuations on risk perception and why it's essential to cut the 'freak out number' in half during turbulent times.
Required Growth as Dictated by Your Financial Plan - Understand the importance of aligning your portfolio's risk level with your retirement income plan. Find out why a well-funded plan might allow for a lower-risk approach, while a distribution-heavy plan may require a different strategy.
If you're thinking "I love the Big Picture Retirement podcast" please consider rating and reviewing this show! This helps us support more people -- just like you -- move toward a confident retirement. Just scroll down to the "ratings and reviews" section, tap to rate with five stars, and select "Write a Review." Then be sure to let us know what you loved most about the episode!
Also, if you haven't done so already, follow the podcast. We're adding new content every week and if you're not following there's a good chance you'll miss out. Follow now!
Want to ask Devin or John your question? Just visit https://www.bigpictureretirement.com/ and look for the tab on the right side that says "Send A Voicemail."
Although this show does not provide specific tax, legal, or financial advice, you can engage Devin or John through their individual firms.
Contact Devin's team at https://carrolladvisory.co/podcast1
Contact John's team at https://www.rossandshoalmire.com/
Transcript
Click on a timestamp to play from that location
| 0:00.0 | The Big Picture Retirement Show does not provide tax, legal, or financial advice. |
| 0:04.3 | Listeners are encouraged to seek out their own advisors in these areas. |
| 0:10.5 | Hey, everyone, welcome to the Big Picture Retirement Show. |
| 0:13.3 | I'm your host, Devin, joined by my co-host, John Brooks. |
| 0:16.3 | Howdy? |
| 0:36.7 | John, whenever you're setting up your portfolio and you're trying to figure out how much should you have in stocks, how much should you have in fixed income, or maybe, you know, cash, maybe commodities, maybe gold, I hope not. |
| 0:39.2 | Crypto. |
| 0:40.7 | God, please no. |
| 0:43.2 | It's referred to as asset allocation, right? |
| 0:43.5 | Sure. |
| 0:49.9 | And the thing with asset allocation is there seems to be two prevailing schools of thought out there, and that's that you should either have 60, 40 or 70, 30. |
| 0:53.8 | So it should be either 60% |
| 0:55.4 | stocks, 40% bonds, or 70% stocks, 30% bonds. And you'll see some variations of that. Sometimes |
| 1:03.2 | there'll be an 80-20. Occasionally we'll run into someone that's 100% equities with no |
| 1:08.1 | bonds. I can't fault them for that either, by the way. But this asset |
| 1:12.7 | allocation is meant to give you a risk-adjusted portfolio because fixed income is safe. |
| 1:19.7 | Stocks are not, right? That's the way everyone has thought of those. In theory. Yes. Especially in |
| 1:26.6 | 2022, when most bonds went down further than stocks. |
| 1:31.2 | So, but, but, you know, we've, we've had this way of measuring the amount that you need to have, |
| 1:38.0 | and it's kind of all based on your risk tolerance. So if you're an aggressive investor, |
| 1:41.9 | that would mean that, you know, 80 to 90 percent is going to be in stocks. If you're a conservative investor, you might have a 50-50 ratio. But how do you go about determining where someone is? Are they conservative? Are they aggressive? So firms along the way said, well, we're supposed to do our due diligence on these clients. We're supposed to figure out where they are and put them in an investment portfolio that's appropriate for their risk tolerant. So let's come out with a questionnaire. And let's make this a seven question questionnaire that ask them some questions. And based on that, we're going to score it. So now, is this seven, is this like kind of standardized? Like you'll see this? I don't know that it's But it's somewhere around there. Yes. Okay. So I did the standard risk tolerance questionnaire. |
| 2:21.4 | Okay. Is this like kind of standardized? Like you'll see this? I don't know that it's seven, but it's somewhere around there. |
... |
Please login to see the full transcript.
Disclaimer: The podcast and artwork embedded on this page are from Devin Carroll, and are the property of its owner and not affiliated with or endorsed by Tapesearch.
Generated transcripts are the property of Devin Carroll and are distributed freely under the Fair Use doctrine. Transcripts generated by Tapesearch are not guaranteed to be accurate.
Copyright © Tapesearch 2026.