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How Much Risk Is in Your Portfolio?

How Much Risk Is in Your Portfolio?

July 13, 2022

Does it feel like the world is spinning out of control? We know the feeling. From a global pandemic to inflation and political headlines, increased market volatility is just one of the side effects we’ve experienced. It makes sense if you’re feeling panicked—especially when it comes to your finances. After all, human beings are naturally averse to loss, and the pain of losing is more powerful than the potential to achieve gains. (1)

But here’s the irony: When we make emotional decisions and act irrationally in an attempt to avoid loss, we can lose even more. Just ask any investor who has sold stock when the market dropped and missed the recovery, only buying back in when the markets were high again. 

So what’s the solution? We know we need to invest to grow our money into a nest egg that will sustain us in the future, but how can we ensure we don’t take on too much risk in the process? 

Risk, Defined

In the financial world, risk tolerance is defined as a measure of one’s financial ability to withstand losses. While you can’t completely eliminate risk in your portfolio, you can ensure that the amount of risk you take correlates with the level of potential reward for you to gain. It is more than possible to match your investments to your goals, while still being able to sleep at night during market downturns. 

Here’s what you need to remember when you’re tempted to get out of the market ASAP: Some risks are avoidable; some are not. Avoidable risks are those that occur when your portfolio leans too heavily on stocks or bonds that have been unstable in the past or when your holdings are not diversified appropriately. 

For example, you may be putting too much of your company’s stock in your 401(k) plan. Or you may have an overabundance of overlapping U.S. mutual funds instead of being more globally diversified. Avoidable risks often occur when we underestimate risk and believe we can tolerate more than we actually can.

On the other hand, unavoidable risks are those that occur because our world is ever-changing, volatile, and we can’t predict the future. Unavoidable risks are simply out of our control. This type of risk includes events like geopolitical issues, global pandemics, and dramatic election seasons. 

The third category of risk is often unseen, but it can impact your portfolio just as intensely as an obvious risk: the risk of being too conservative and not achieving your future goals as a result. By overestimating risk and trying to avoid losses at any cost, you could be unintentionally sacrificing your future dreams.

What Can You Do About Risk? 

If only it were as simple as telling your advisor you feel comfortable with “moderate” risk. Since everyone has his or her own risk tolerance level, based on age, life circumstances, and time horizon, there’s no one-size-fits-all formula. The key is using a quantitative approach to pinpoint how much risk you are comfortable taking, how much risk you need to take to pursue your goals, and how much risk you currently have in your portfolio. 

At Key Wealth Management, we use Riskalyze, an online tool based on Nobel Prize-winning research that gives you your personal risk number. Then, using your personal risk number as a foundation, we gather info, look at the facts, and build a portfolio that is right for you. It’s a way to give consistency and direction to your financial plan. Knowing your risk numbers helps us guide you toward a portfolio you can hold fast to when the road gets rough or when permanent loss stares you in the face. 

Our goal is to help you discover your limits before you’re overcome with fear and tempted to sell. We’d love to chat with you, talk through your goals, and work toward your dreams while working within your personal risk level. To get started, schedule an introductory appointment by reaching out to us at or (724) 934-9196.

About Todd

Todd Stepke is the founder and a financial advisor at Key Wealth Management, an independent financial firm committed to putting its clients first and building long-lasting relationships that carry them through life’s ups and downs. With over 25 years of experience in the financial industry, Todd provides his pre-retiree and retiree clients with customized solutions and a personal touch—getting to know their goals, needs, concerns, and life situations to build plans that help them pursue their ideal futures. Todd is known for going the extra mile and educating his clients, simplifying the complicated so they can make empowered and informed decisions. 

Todd obtained a bachelor’s degree in accounting from Duquesne University. Spending many years as an accountant, he continually saw that his clients were not being served well by their financial advisors. Todd now blends his vast tax knowledge with his passion for seeing his clients thrive financially. Outside of work, he enjoys spending time with his wife, Kandace, biking, gardening, fishing, perusing estate sales, and trying his hand at new recipes (especially baking). To learn more about Todd, connect with him on LinkedIn.

Securities offered thru LPL Financial, Member FINRA/SIPC. Investment advice offered through Key Wealth Management, a registered investment advisor and a separate entity from LPL Financial.

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

All investing includes risks, including fluctuating prices and loss of principal.