Understanding Risk Tolerance: How Much Can You Stomach Before You Flinch?

Risk tolerance is the amount of loss you can handle before you start feeling impatient—or worse—undisciplined in the market.

If a 10% dip in your portfolio makes you want to sell everything, your risk tolerance is about 10%.If you can stomach a 50% drop before losing sleep, your risk tolerance is closer to 50%.

It’s that simple in concept—but far more complex in practice.

Why Your Risk Tolerance Changes Over Time

Most people have a fear of heights when it comes to investing. The higher the market climbs, the more there is to lose.

A 10% drop on a $1,000 investment feels inconvenient. A 10% drop on a $1,000,000 portfolio feels devastating.

The percentage is the same, but the emotional reaction is entirely different. That’s why risk tolerance isn’t static—it evolves with your experiences, wealth, and life stage.

The Danger of Measuring Risk at the Wrong Time

Think of risk tolerance like asking a Floridian how they feel about the weather. If you ask right after a hurricane, they’ll say it’s terrible. Ask again after months of sunshine, and you’ll get a completely different answer.

The same goes for investing. When markets are falling, everyone feels cautious. When markets rise for years, confidence—and risk appetite—tends to grow unchecked.

That’s why measuring risk tolerance only once—especially during emotional extremes—can mislead you. A balanced perspective requires time, reflection, and context.

Staying Patient and Disciplined

Markets will always have ups and downs. What matters most is your ability to stay patient and disciplined through both.

At In The Money Retirement Planning, we help investors align their portfolios with both their financial goals and their emotional comfort zone—so they can weather storms without abandoning the plan that gets them to shore.

About the Author

Marc Lowe, CFP® is a fee-only fiduciary advisor based in New London, CT, helping retirees, business owners, and Electric Boat employees make smarter financial decisions.

CEO & Founder of In The Money Retirement Planning

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