How to Discern Portfolio Choices Based on Risk Tolerance

Jake Richards

04-29-2026

One of the leading concerns for investors and advisors is determining their own risk tolerance and how to apply it in each person’s portfolio. To know how to apply it, we first need to know the definition of risk and how it correlates to investing. Risk is the potential of loss or gain when it comes to an asset. Some assets can carry high levels of risk — think stocks — meaning large return and loss potential. Others carry little risk — think cash — that can have little to no sway in returns.

Knowing the definition of risk only gets us so far when it comes to investing. You may ask why that is? Because risk is something that constantly needs adjustment as we age. When we are early in our career and have income coming in steadily, we can afford to take more risk than when we are older. Why does it change when we are older? We have less time to undo potential losses.

In the investment field, we call this time horizon. A 30-year-old may have 35 years until they retire, meaning if the stock market were to take a major downturn, we would have 35 years to correct and rebuild. In that same situation at 60, we would have five years. That means there is much less time to adjust as we get older, which inherently means we need to be less risky.

Now, what are the general guidelines? Note: this is not financial advice.

• At 30: A 30-year-old has plenty of time to catch up if they were to see a potential loss. It’s wise to have an emergency fund set aside, but as far as investing, because of a large time horizon, we can afford to be much more aggressive. They can put as much as 80-100% in the stock market. They have a lot of time to make up for potential loss, meaning they can afford to take risks.

• At 45: This is where it gets interesting. Have you ever heard of the lost decade? This refers to the period from 2000-2010 when the S&P 500 saw negative growth. How does this apply to 45-year-old investors? Their time horizon is getting shorter. It’s now 20 years instead of 35. With this in mind, they want to make sure they decrease their risk. Now is when they want to add things such as principal protection into investments to hedge against potential loss in the stock market. They would also want to make sure that we have less of our assets exposed to the market, think 60-80%.

• At 60: The time horizon is now down to five years. This is the moment they’ve been waiting for: retirement. This is where it can get incredibly tricky. After a full career where they’ve always had paychecks coming in, they are now about to only be taking money out of accounts and have minimal coming in. This is really where they would want to scale back risk and take more out of the stock market. When investors are at this age, instead of having a plus or minus 40% return, they should be more concerned about limiting loss potential. This means adding more investments that hedge against risk. It also means lowering their stock market position, for example 50-70%, less than when they were 45.

What does all of this mean? As we get older we want to make sure we expose ourselves to less volatility in the stock market because we have less time to recoup losses. The biggest takeaway, contrary to popular belief, is that risk is subjective.

These are good guidelines to follow if you have not explored the subject before. The truth is, risk is completely subjective to what you’re willing to lose and what you need to survive. I’ve worked with individuals who are completely opposite of these guidelines; they know this and are comfortable with it. The most important thing you can do is evaluate your risk and what you’re comfortable losing, and adjust from there. No two people will be alike, and it’s important to consider all your options to best fit your own personal tolerances.