A Guide to Understanding Your Investment Risk Tolerance and Building a Portfolio That Fits You

Why Knowing Yourself Is the First Step to Investing

At B.I.G. Investment Services, we believe great investing starts with self-awareness. Before you even look at stocks, mutual funds, or retirement accounts, it’s essential to understand something even more important—your investment risk tolerance.

Let’s be real: investing isn’t always smooth sailing. The market goes up, the market goes down, and how you react in those moments says a lot about what kind of investor you are. Some people can stomach wild swings. Others lose sleep over minor dips.

Neither approach is wrong—but knowing which one you are is key to making smart, strategic decisions with your money.

What is Investment Risk Tolerance and Why Does It Matter?

Investment risk tolerance refers to your ability and willingness to handle fluctuations in the value of your investments. Put simply, it’s how much risk you’re comfortable taking as you work toward your financial goals.

Think of it this way: How would you feel if your investments dropped 10% overnight? What about 20%? Would you see it as an opportunity—or a reason to pull out and panic? Your answer determines your risk tolerance.

Why Does Risk Tolerance Matter in Financial Planning?

Understanding risk tolerance is a foundational step in creating a solid investment strategy. Here’s why it matters:

✔️Avoid Stress and Emotional Decisions: If you take on too much risk, market dips may cause panic and lead to impulsive, short-sighted decisions.

✔️Stay on Track Toward Goals: Knowing your risk tolerance helps you maintain a portfolio that aligns with your objectives, whether it’s growth, income, or preservation of wealth.

✔️Reduce Surprises: By understanding your preferences, you go into investing with eyes wide open, knowing what to expect in terms of potential gains and losses.

Taking the time to assess your risk tolerance now can save you from mismatched investments and unnecessary stress in the future.

The Relationship Between Risk and Return

In investing, there’s an old saying: No risk, no reward. It’s true.

Every investor dreams of high returns, but here's the truth: higher returns usually mean higher risk. Risk and return go hand in hand in investing. The more risk you take, the higher your potential for returns—but also the greater your chance of loss.

Here’s a simple breakdown:

Risk Level	Investment Type	Potential Return	Potential Volatility
Low	Savings, CDs, Bonds	Low	Low
Medium	Balanced Mutual Funds	Moderate	Moderate
High	Stocks, ETFs, Crypto	High	High

How Risk and Return Work

• Low Risk, Low Return: Investments like bonds or certificates of deposit (CDs) are generally safer but tend to offer conservative returns.

• High Risk, High Return: Growth-focused investments like stocks can generate significant gains, but they also come with the possibility of losing value in the short term.

How This Changes Over Time

Your risk tolerance and investment approach are likely to evolve as your life circumstances change. For example:

• Younger Investors: May prioritize higher-risk, higher-return investments because they have time to ride out market volatility.

• Retirees: Often seek safer, income-focused investments to preserve their wealth.

But here’s the twist: your risk tolerance can change over time. Someone in their 30s saving for retirement might take on more risk than someone nearing retirement who needs stability. That’s why assessing and reassessing risk tolerance regularly is crucial.

By understanding this balance, you can choose investments that provide the right mix of risk and return as your needs evolve.

Factors That Influence Risk Tolerance

What determines whether you’re cautious or aggressive when it comes to your investments? Several factors come into play, and understanding these can help you build a portfolio that fits you perfectly.

1. Your Age and Life Stage

Age isn’t just a number when it comes to investing—it’s one of the biggest factors in determining how much risk you can take on.

• If you’re in your 20s or 30s, you’ve got time on your side. Market dips might sting, but you have years (even decades!) to recover and grow your wealth. That’s why many younger investors lean toward higher-risk, high-reward strategies.

• If you’re closer to retirement, protecting what you’ve built becomes a bigger priority. Safer, steadier investments might be more your speed to preserve your hard-earned nest egg.

2. Your Financial Situation

Let’s get real: your financial stability plays a big role in how much risk you’re ready to take.

• Got an emergency fund? A steady income? If so, you might feel more confident exploring higher-risk investments, knowing you have a cushion to fall back on.

• But if you’re relying on your portfolio to cover day-to-day expenses, a more conservative approach can help provide peace of mind.

Think about where you’re at today—your financial foundation can help guide your comfort level when it comes to risk.

3. Your Investment Goals

What are you investing for? This question is everything when we’re talking about risk tolerance.

• If you’re working toward long-term goals like retirement, you might benefit from growth-oriented investments, which are often higher risk but have the potential for higher returns over time.

• Short-term goals—like buying a home in a few years or paying for a big life event—may require a more cautious, low-risk strategy to ensure your funds are ready when you need them.

4. Your Personality and Behavior

Here’s where it gets personal: how do you actually feel about risk?

• If market drops make you panic and want to sell everything, that’s a sign you might prefer a more conservative approach.

• But if you see volatile markets as opportunities to buy low and ride the wave back up, you might be more comfortable with riskier investments.

There’s no right or wrong answer here—it’s all about understanding how you react to uncertainty and planning accordingly.

At B.I.G. Investment Services, we’ll help you explore these factors in-depth, so your portfolio reflects not just your goals, but also your unique personality.

How to Assess Your Investment Risk Tolerance

Wondering how to measure your risk tolerance? There are several methods that can help clarify your ideal level of risk.

1. Try a Risk Tolerance Questionnaire

Think of this as a quick personality quiz—but for your finances. These tools are designed to help you better understand your comfort level with risk by asking questions about your financial goals, timeline, and how you handle hypothetical situations. For example:

• How would you feel if your portfolio dropped 20% in one year?

• Do you prioritize steady, predictable returns, or are you chasing big growth?

These quizzes can give you a helpful starting point, but they’re just the first step.

2. Chat with a Financial Advisor

Sometimes, a conversation is all it takes to make things clearer. A financial advisor can help you dig deeper into your answers, offering insight and guidance you might not get from a questionnaire alone. They can:

• Help you understand how your risk tolerance fits into your short- and long-term goals.

• Put your concerns into perspective and build a strategy that balances risk with reward.

Think of them as your investment coach—they’re there to help you make informed decisions and stay on track.

3. Reflect on Your Past Behaviors

Your own financial history can reveal a lot about your risk tolerance. Take a moment to think about:

• How you reacted during past market downturns (Did you sell quickly, or ride it out?).

• Your approach to other big decisions, like buying a home or choosing where to save your money.

This can give you valuable insight into how you’re likely to handle risk in the future.

Here at B.I.G. Investment Services, we know that understanding your risk tolerance is about more than just numbers—it’s personal. That’s why our team takes the time to learn about you, your goals, and what makes you comfortable. With our in-depth process, we’ll help you find the right balance so you can confidently invest in your future.

Building a Portfolio Based on Risk Tolerance

Now comes the fun part: using your risk tolerance to create a portfolio that fits your needs like a glove. Here’s how it’s done.

1. Understand Your Risk Profile

First things first—what type of investor are you? Knowing your risk profile is the foundation of building a portfolio that works for you. Take a moment to think about how much risk you’re comfortable with:

• Conservative: If protecting your initial investment is your top priority and you avoid risk like the plague, this might be you. Think slow and steady wins the race.

• Moderate: You want a little bit of both worlds—growth and stability. You're okay with taking on some risk, but nothing too wild.

• Aggressive: You’re all about growth! A little market volatility doesn't scare you, and you're willing to ride the ups and downs for potentially higher returns.

2. Plan Your Asset Allocation

Once you’ve figured out your risk profile, it’s time to decide how to spread your investments across stocks, bonds, and other assets.

• Conservative Portfolio: Typically focuses on stability—around 70–80% in bonds and just 20–30% in stocks. It’s all about playing it safe.

• Moderate Portfolio: A balanced mix, with about 50% in stocks and 50% in bonds. You’re aiming for steady progress without too much drama.

• Aggressive Portfolio: Aiming for growth? This setup often has 80–90% in stocks and only 10–20% in bonds. High risk, high reward!

3. Don’t Forget to Rebalance

Here’s the thing—markets change, and so does life. Maybe you get a promotion, plan for retirement, or realize your risk tolerance isn’t quite what you thought.

That’s why rebalancing your portfolio regularly (annually is a good start) is so important. It keeps everything aligned with your goals and ensures your portfolio evolves as you do.

Why Partnering with a Financial Advisor Makes All the Difference

Knowing your risk tolerance is essential, but the true power lies in crafting a well-designed portfolio that aligns with it. 

A trusted advisor can:

✔️Interpret your tolerance level and translate it into a balanced investment plan

✔️Adjust your portfolio over time as life and market conditions change

✔️Keep you grounded when emotions rise and markets fall

✔️Help with financial education so you feel confident, not confused

Our advisors at B.I.G. Investment Services take the time to get to know you—not just your finances. Because when your investments match your mindset, you’re more likely to succeed long-term.

Let’s Build a Portfolio That Fits You Perfectly

Investing shouldn’t feel like walking through fog. When you understand your investment risk tolerance, you gain clarity, confidence, and control.

Ready to get started? We’re here to help you assess your comfort level, define your goals, and build a portfolio that grows with you. No pressure. Just real conversations, smart strategies, and a dedicated team behind you.

Contact B.I.G. Investment Services today to schedule your complimentary consultation. Let’s build a plan that fits you—and helps you reach the future you deserve.

Disclaimer:

Investing in securities involves risks, including the potential for loss of principal. There is no guarantee that any investment plan or strategy will be successful. Boothe Investment Group, Inc. does not provide tax or legal advice. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.