How to Respond When Risk Tolerance is Tested

When you begin investing, you’ll generally assess your comfort with risk, as your investment choices will be guided at least partially by your risk tolerance. But once you actually experience the ups and downs of the market, this tolerance could be tested.

Risk tolerance may appear less bothersome in the abstract but seem quite different in reality. For example, you might initially think you wouldn’t be fazed by short-term market downturns, no matter how severe.

However, when the financial markets really decline, as happened when the COVID-19 pandemic struck last March, you might find yourself...