If you asked if I was scared of snakes, I would say no because I’m not. Except when I fell off of my mountain bike attempting high-speed maneuvers in Point Washington State Forest. I exited that muddy creek like greased lightning — I was scared of water moccasins. Sure, most snakes won’t bother you but laying on your back in murky water clouds your judgment. I reacted emotionally, I’m human.

Risk tolerance questionnaires typically ask how you would react to percentage loss, 20% for instance. It may be easy to say you would buy more or stay the course. But during sharp sell-offs, as Jason Zweig noted in a recent Wall Street Journal column, risk becomes “no longer a notion but an emotion.” Typical risk tolerance questionnaires, available online or provided by a financial advisor, should be used with caution; at least, understand their limitations. During bull markets, people score higher than they do during downturns and how people feel changes their answers, too.

Another problem with questionnaires is they don’t take into account the need to take risk. Rick Ferri, a wise man and my friend, believes clients should take the least amount of risk necessary to reach their goals. A retiree in their 70s likely doesn’t have decades to recover from a downturn. A couple with more money than they will spend in their lifetime can take more risk. They are investing for the next generation. In his letter to his executor, Warren Buffett recommends an aggressive portfolio for his widow, 90% in the S&P 500 index and 10% in a short-term bond fund. The dividends will probably cover her needs.

One approach to risk and portfolio allocation is you handled the Great Recession. Remember, you are 10 years older. Perhaps then you were still contributing to your 401K, but now you may be taking distributions. Then contributions reduced the adverse effect, but now distributions will exacerbate a market decline. Your goals and time horizon are part of the equation, as well, probably more critical than a risk tolerance score.

Advisors have personal biases, too. An advisor compensated by a percentage of assets managed may recommend more aggressive portfolios since that’s how they get paid. Any professional, regardless of their occupation, is subject to what Noble Prize winner Daniel Kahneman calls noise or irrelevant data like the weather.

September is College Savings Month

Florida offers a cost-savvy way to fund college with the Florida Prepaid Tuition Plan. Original enrollment dates coincided with football season and the holidays, but now year-round registration is available with a pricing update period from Feb. 1 through April 30. Florida’s Prepaid Plan avoids all stock market risk, but I prefer using 529 investment plans whose value depends on market performance. Instead of toys, we buy tuition, something the Texas Tornadoes can’t break.

You can’t always get what you want but Buz Livingston, CFP can help you get what you need. For specific recommendations visit us online at livingstonfinancial.net or come by our office in Redfish Village, 2050 Scenic 30A, M-1 Suite 230.