Traditional conversations about risk tolerance generally focus on clients’ retirement goals and related investments. Since it’s always a subjective topic, there’s never a perfect answer. Ultimately, the amount of risk one takes depends on a number of factors including knowledge, experience, goals, and feelings––i.e. how much can they stomach to lose?   

The concept of “risk” and its principles also apply to those of us in the role of advisor. Not how advisors select and manage their own investments but, instead, how they may need to adjust their personal risk tolerance before hazarding a major undertaking such as finally writing that book or developing a new portfolio rebalancing process or getting approval to implement a strategy to connect more deeply with prospects and clients. 

While my focus is generally on how to work with clients in various retirement situations, I find summer the perfect time to work on myself and, thus, advisors like me. I often take on a new project, or exercise my creativity during the summer since my clients require less of me at this time of year.

I’m also touching on the topic of “adjusting personal risk tolerance” because of conversations I have been having with other advisors. A growing number of advisors are telling me they aren’t where they want to be, want to try something different such as changing their conversations with clients or adding a fresh or unique perspective to their investment overview. Undoubtedly, clients, individual practices, and our industry are starved for new and innovative ideas, making now the perfect time to move forward with them. 

So what is it?  What’s your big idea that you’ve been holding on to and that’s been in your head or on scratch paper in your drawer? How will it benefit others? What makes it special and unique?  

Regardless of whether it’s your first year in the business or you’re a silver-haired veteran, everyone has prospects who want a 10 percent return without losing a dime. And so we walk clients through the relationship between risk and return: No risk, no return, right? The same holds true for that big idea you have.  You can’t impact a client’s life, another advisor’s career, or an entire industry if you don’t roll the dice. You have to move from capital preservation mode (I don’t want lose anything, be judged or possibly fail) to aggressive growth mode (swing for the fences).

First and foremost, I think it’s important to talk about the downside of getting out of your comfort zone.  Just as we warn clients that down markets are just as much a part of investing as up markets, the reality is, losses seem to hurt more. One of my core areas of expertise is learning the hard way.  Literally, I have messed up so many times, in so many ways, that it’s actually become an asset because I’ve learned how to tolerate complete and total losses; to trust my instincts; and to care less about what others think:  A contrarian view, if you will.

I once created a software program that helped people budget and manage their cash flow based on their personal beliefs and values, instead of mere dollars and cents. It prioritizes their spending and saving habits based on what’s important to them. Unfortunately, after three years of pain, expense and time consuming work, I realized that broke people don’t want help––or at least to pay for it––and that advisors can’t make a living helping penniless people who don’t want help. So it was a total bust on my balance sheet, but a blessing in knowledge and experience gained, which are two key factors in any kind of risk tolerance scenario. 

I also recall my first published article. I sent it off for approval, naturally thinking it’s only a matter of time before I’m on the NY Times bestseller list and wondering what would be a witty opening line to my Pulitzer Prize acceptance speech. But, of course, that wasn’t exactly what transpired.  The article I gave birth to came back with one, maybe two, of my original sentences intact. It was disheartening and felt like someone punched me, creating an emotional state that made me question my desire to continue down that path.

Just as the dot.com crash and great recession humbled many investors, failure, letdowns, and setbacks will be part of the process, and those stumbling blocks should help shape your personal risk tolerance. You won’t please everyone, and it’s inevitable that some won’t even like your idea. But just as we teach our clients about the need to diversify and ride out things, you may need to try different ways to make your idea happen, and commit to the long haul. There will be bumps in the road.  Volatility may make you want to get off the rollercoaster. But, as we preach to our clients, staying the course and avoiding emotional decisions will pay dividends.  

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