In my recent commentary, I showed that if an investor couldn’t handle a 12% drawdown in stocks then they really have no business investing heavily in stocks at all since 12% is quite unremarkable and common for stocks. That was essentially scratching the surface of what I mean by emotional capacity for risk.
I also mentioned that we don’t often know our true risk tolerance until it is tested, which is why I also make sure to identify clients’ financial capacity for risk using stress tests within their financial projections.
So, I wanted to briefly provide a real-world example of this exercise. Continue reading “How Your Financial Plan Drives Investment Strategy”