Isn’t so much of what we do about demystifying the challenges / risks of investment, so that people can position themselves more appropriately?

But then I thought a bit more — and you’re right, I can’t think of very many people at all whose risk appetite has changed since I’ve known about their finances.

Those who were happy with a big slug of equities were pretty happy from the get-go, and those who said “I want no risk” still send me links every time a 3% fall in the market makes the front page of the mainstream newspapers to justify their stance, even after I’ve explained multiple times that shares go up and down short term, and you pay that price for hopefully better long term returns.

So you may be right. Bit depressing!

Mike answered my AA questions in a prior post and really helped me settle my anxiety and fear of investing. i was 40 yrs old and yet not comfortable with investing in the market at my ‘supposed’ AA (60/40).

By simply adjusting my allocation to 50/50 and understanding I am a long term investor I have been able to sleep peacefully at night and not worry about market volatility or alternatively worry about not being invested.

As mentioned above our risk tolerances are affected by many things and may change over time as these factors change. I am a consultant with uncertain income hence my slightly conservative approach. Should I secure a long term contract or steady income, I would like to increase my exposure to equities.

I love this post and completely agree. For a lot of years as a self-directed investor, I was trying to learn how to “steel myself” from concern about my portfolio. Now I’ve come to believe that there are two things that make for a great investment. The first is the classic: that the value of the investment rises. The second: that you can sleep well while you own it.

Our risk tolerance definitely changes over time, there are literally hundreds of variables that can affect it, and we each give a unique weight to those factors…when we want to retire, when we need to send our kids to college, how secure our job is, etc.

I’m sold that keeping your portfolio aligned with your tolerance for risk and beliefs about the future is the way to go. The “buy and ignore” era is over.

Aaron

When you’re 29 it pretty much doesn’t matter what your allocation is. It matters that you’re saving.

Ray, whether that’s an appropriate asset allocation for your hypothetical 29-year-old depends on his need to take risk. If it’s low, I’m not sure why 40/60 couldn’t be an appropriate allocation. Plenty of people have made it to retirement using very conservative allocations and saving aggressively. That’ll be harder in the future because today’s bond investors are unlikely to be helped along by the tailwind of falling interest rates–although, who knows?–but it can still be done.

I’m speaking slightly from experience: I hold higher than my age in bonds, and most planners would probably call my portfolio too conservative. But I’m comfortable with it and believe I have a realistic view of its expected return. I live well, save a lot, and don’t enjoy taking unnecessary risk.

See here for my thoughts on using valuations.

Alternatively, I think Matthew Amster-Burton did a great job with his recent piece at the Mint blog.