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What did the investor do between 2/19/20 and 3/23/20 when the stock market dropped 34% in the 24 days it was open:
How much of their portfolio if anything did they sell?
Did they stop dollar cost averaging?
Did they stop contributing to their 401k?
Did they change the allocations of their 401k?
After answering those questions, repeat them for the 10/07 – 3/09 crash when the market dropped about 57%
Determining risk tolerance is a tricky thing.
Its unknowable until one has a meaningful amount (to them) at risk during a prolonged bear market and it changes with wealth, life stage and life events.
Look at their account history… proof is in the pudding!
What did they do during the height of a market turbulence (e.g., first half of 2020, last quarter of 2018, etc.)? Buy, Sell, or Do Nothing? I never knew my tolerance level until the 2008 financial crisis.
On a lighter note, there might be a (weak) correlation between risk tolerance and the frequency of checking portfolio balance. I have a feeling that people with high risk tolerance can go much longer without checking market performance 🙂.
If the investor sells at the first sign of a market correction then there’s little risk tolerance.
How well they sleep the night of a market crash.
I think JP Morgan said, “sell to the sleeping point.”