It's a Great Time for a Risk-Tolerance Reality Check
Your exposure to stocks may have crept up over the years
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Financial advisers say clients often overestimate their tolerance for risk. But data suggest it's really financial advisers who become more nervous than they expected when markets become volatile.
Advisers often underestimate their own stomach for risk significantly, by as much as 20 points (on a scale of 1 to 100), according to FinaMetrica, a firm that runs psychometric risk tolerance tests. The danger is that advisers can inadvertently push their perceived higher tolerance for risk onto clients when designing a portfolio, according to Tyler Nunnally, FinaMetrica's U.S. strategist. The 800,000-plus tests FinaMetrica has analyzed show that most clients of advisers just slightly overestimate their comfort with investment risk.