After years of strong market growth, recent volatility has left many questioning their investment strategy. With economic uncertainty and concerns about a potential recession, now is a good time to reassess your risk tolerance, especially if you’re nearing retirement or already retired.

This article from Bulman Wealth Group discusses the concept of risk tolerance, its impact on your retirement planning in California, and why revisiting your investment strategy is vital during times of uncertainty.

Understanding Your Risk Tolerance

Risk tolerance refers to how much market fluctuation you’re comfortable with in your investments. Some investors are willing to accept market swings in pursuit of higher returns. In contrast, others prefer a more conservative approach to preserve their savings. Understanding your personal risk tolerance can help you make decisions that fit with your retirement timeline and financial goals.

Risk Tolerance vs. Risk Capacity

Many people confuse risk tolerance with risk capacity—but they are not the same.

Risk tolerance is psychological—it reflects how much market volatility you can handle.

Risk capacity is financial—it depends on how much risk you can afford to take based on your assets, income, and retirement needs.

For example, someone may have a high tolerance for risk, but if their financial situation does not support aggressive investing, taking on too much risk could jeopardize their long-term security. Conversely, someone with substantial financial resources may have the capacity for risk but prefer a more conservative approach.

Factors That Influence Risk Tolerance

Several key factors affect how much investment risk is appropriate for you:

• Time horizon – The number of years until you need to withdraw funds plays a major role in risk capacity. Retirees with decades ahead may have more room for market volatility. At the same time, those relying on their portfolio for near-term income may need a more stable approach.

• Financial goals – Are you focused on preserving wealth, generating income, or growing assets? Your priorities will shape your risk tolerance and investment strategy.

• Personal comfort level – Some investors can handle short-term losses without worry, while others may feel anxious when markets decline. Your emotional response to market swings is an important part of risk assessment.

• Current financial situation – Your overall financial health—including savings, income sources, and expected expenses—impacts how much risk you can reasonably take on without compromising your financial security.

Assessing Your Own Risk Tolerance

To better understand your risk tolerance, consider these questions:

• How did I react during past market downturns? Did I stay invested or move to safer assets?
• If my portfolio dropped by 20%, would I be patient for a recovery, or would I sell to avoid further losses?
• Do I prioritize steady, reliable returns, or am I comfortable taking on more risk for potential growth?
• How much of my retirement income depends on my investment portfolio?

Your answers can help clarify how much risk is appropriate for your situation.

Matching Your Risk Tolerance With Your Goals

After determining your risk tolerance, the next step is to align it with your financial goals. Your investments should reflect your comfort level while addressing short-term liquidity, mid-term stability, and long-term growth.

Aligning Investments With Your Risk Tolerance

Conservative investors – If preserving capital is your priority, a defensive portfolio with bonds, dividend-paying stocks, and cash equivalents may be preferable.

Moderate investors – A balanced approach may include a mix of stocks and bonds, providing exposure to growth while maintaining stability.

Aggressive investors – Those comfortable with higher risk may prioritize equities and alternative investments, seeking higher returns despite short-term volatility.

Diversification helps manage risk by spreading investments across asset classes. A well-diversified portfolio may include:

• Equities (U.S. and international stocks) for long-term growth
• Bonds for income and stability
• Real estate or alternative assets for diversification
• Cash reserves for short-term liquidity

Adjusting Risk Tolerance Over Time

Risk tolerance is not static—it should be reassessed regularly, especially during major life changes such as:

• Transitioning into retirement – Moving from wealth accumulation to wealth distribution often requires a more balanced or conservative strategy.

• Health changes – Medical issues can impact financial outlook and risk capacity.

• Market fluctuations – Economic downturns or periods of volatility may influence how much risk feels comfortable.

• Changes in income sources – Adjustments to Social Security, pensions, or other income streams may require a shift in investment strategy.

Regularly reassessing your risk tolerance allows you to adjust your strategy, balancing protection and growth in retirement.

How a Financial Advisor in California Can Help

A plan is just an idea until it’s put into action—and that’s where an experienced financial partner makes all the difference. A skilled advisor can help you turn financial goals into a structured strategy by:

• Evaluating your complete financial picture: Reviewing assets, liabilities, income sources, and future expenses.

• Clarifying your objectives: Understanding your short-term needs, long-term goals, and overall retirement vision.

• Developing a comprehensive plan: Incorporating estate and legacy planning and long-term care planning in California.

• Assessing risk tolerance: Helping match investments with your comfort level and financial priorities.

• Making portfolio adjustments: Rebalancing as needed based on market conditions, risk tolerance, and life changes.

• Providing tax-efficient strategies: Exploring RMD tax strategies and retirement tax benefits in California to help manage tax liabilities.

At Bulman Wealth Group, our Roseville, CA, financial advisor team and financial advisor Temecula professionals focus on developing customized retirement strategies that reflect Californians’ unique financial needs.

About Bulman Wealth Group

At Bulman, we bring decades of experience and a comprehensive approach to retirement planning in California. Our structured process, known as the Five Points of the Financial Compass, addresses every key aspect of your financial life, including:

• Investment management
• Retirement income planning
• Healthcare in retirement
• Tax planning
• Estate and legacy planning

We understand that financial confidence in your California retirement requires thoughtful planning, proactive risk management, and solutions tailored to your specific needs—no matter what’s happening in the stock market.

Want to reassess your risk tolerance and investment strategy?

Reach out to us today for a personalized consultation and take the next step toward a retirement plan designed for you.