
Risk tolerance is an archaic method for deciding how you should invest. What does skydiving have to do with reaching your goals? A goals-based approach, on the other hand, ensures your investments are working hard to help you achieve what really matters.
Here at ARC Wealth, we’ve been ruffling some feathers lately. Maybe it’s because we think budgeting is bullsh*t. Maybe it’s because we believe you shouldn’t have to wait until you’re 65 to live your best life. Or maybe it’s because we’re about to drop a truth bomb on one of the most sacred cows in investing: risk tolerance.
Yep, you heard me. Risk tolerance is total BS. There, I said it. Don’t @ me. Or do, and I’ll happily explain why this outdated concept needs to be tossed into the same trash can as your old Blockbuster membership card.
SO, WHAT THE HELL IS RISK TOLERANCE ANYWAY?
Imagine this: You walk into a traditional financial advisor’s office, ready to make your money work for you. You’re expecting talk about stocks, bonds, maybe a little crypto if they’re feeling spicy. Instead, they hand you a questionnaire that feels like a BuzzFeed quiz titled, “What Kind of Thrill-Seeker Are You?”
They actually ask if you’d ever go skydiving. SKYDIVING. As if my willingness to jump out of a perfectly good airplane has any correlation to how I want my RRSP invested. Spoiler alert: It doesn’t.
Investing always comes with risk—there’s no escaping it. If a financial advisor tells you otherwise, it’s time to make a quick exit. The deal is simple: higher risk can lead to higher rewards, but it also means you could lose more. On the flip side, lower risk means lower potential rewards, but also less chance of taking a hit.
But this is standard practice. Advisors use these generic surveys to pigeonhole you into some pre-fab investment strategy based on your so-called appetite for risk. The logic is, if you like living on the edge in life, you’ll want to do the same with your money. But here’s the thing: investing isn’t a Red Bull commercial. It’s not about chasing thrills; it’s about achieving your financial goals.
INVESTING ISN’T GAMBLING, AND YOUR FINANCIAL ADVISOR ISN’T YOUR BOOKIE
Let’s get one thing straight: Investing is not the same as throwing down $500 on Geno Smith and the Seahawks to cover the spread (though that can be tempting). Proper investing should be based on two simple factors:
- How much money do you need?
- When do you need it?
That’s it. End of story.
Whether you’re an adrenaline junkie or someone who gets nervous ordering something new at Starbucks, your investment strategy should align with your financial timeline, not your taste for adventure.
A CAUTIONARY TALE: WHEN RISK TOLERANCE GOES WRONG
Let me hit you with a real-life example. Picture this: It’s the late ’80s, hair is big, music is synthesized, and one of our writer’s parents just got burned by a shady financial advisor. We’re talking mismanaged funds, unnecessary risks, the whole nine yards. Fast forward a few years, and they’re rightfully skittish when meeting a new advisor.
So when asked about their risk tolerance, they go full-on conservative: “Keep our money safe. Wrap it in bubble wrap and store it in Fort Knox.”
The advisor obliges and parks their money in a Guaranteed Investment Certificate (GIC). Safe? Sure. Effective? Not so much.
Years later, their daughter’s retirement account, also invested in GICs, grows at a snail’s pace. Meanwhile, had they invested in the stock market—even accounting for the 2008 meltdown—they could’ve seen significantly higher returns.
LET’S TALK NUMBERS: GICs VS. ACTUAL INVESTING
Time for some quick math (I promise it won’t hurt).
- Scenario A: In 2005, they invest $20k and add $1k annually. By 2015, they’ve got around $36,000 sitting pretty in low-risk GICs.
- Scenario B: Same initial investment, but this time it’s diversified across the stock market. Despite weathering the 2008 financial storm, by 2015, the account balloons to over $58,000.
That’s a difference of $22,000. Enough to buy a decent car, fund a year of college, or snag some sideline seats at the upcoming 2026 FIFA World Cup. All left on the table because of an overblown fear of risk.
THE REAL DEAL: TIME HORIZON OVER RISK TOLERANCE
So, if risk tolerance is BS, what’s the alternative? Two words: Time Horizon.
Here’s the playbook:
- Goals less than 3 years away: Stick that money into a high-yield savings account. It’s the financial equivalent of a safe pass—low risk, low reward, but reliable.
- Goals 3-10 years away: Go for a moderate investment strategy. Think of it as a mid-range jumper—not too risky, but with decent payoff potential.
- Goals 10+ years away: Time to get aggressive. This is your slam dunk opportunity. With a decade or more to ride out market fluctuations, you can afford to take bigger swings for bigger gains.
MILLENNIALS, THIS IS YOUR TIME TO SHINE
This is why we love working with millennials. You’ve got time on your side and the opportunity to make smart, goal-based investments that can set you up for life. Forget the stale risk tolerance surveys and focus on what you want and when you want it.
And if you’re thinking about going the DIY route with your investments, more power to you. Just remember: align your investment choices with your goals’ timelines, and don’t let some outdated concept of risk dictate your financial future.
THE BOTTOM LINE
It’s time to retire risk tolerance as we know it. Investing should be personalized, goal-oriented, and, dare I say, kind of fun. So next time a financial advisor asks if you’d go bungee jumping to gauge your investment strategy, feel free to walk out and find someone who asks the real questions.
Invest smart, live your life now, and set yourself up for an even better future. That’s the ARC Wealth way.