Why Your Money Risk Might Not Match Your Personal Risk
By Andrew Nocera, Tax Preparer & Small-Business Finance Consultant, Enhance Finance LLC (Danbury, CT)
Think about the last time you filled up your gas tank. Did you pull in at half a tank, or did you wait for the low-fuel light? Do you get to the airport three hours early, or do you time it to the minute? Do you file your taxes in February, or in the last few days before the deadline?
Everyone has a personal style with risk. Some of us like a buffer on everything. Others are comfortable cutting things close.
But the way you handle risk in everyday life doesn't always match how much risk your money is set up for.
Two kinds of risk, one person
It helps to separate two ideas:
- Personal Risk Comfort: how cautious or bold you are in everyday life, from deadlines and bills to doctor visits and errands.
- Money Risk Level: how much risk your savings are set up for today, based on what you hold and how it's arranged.
You might expect those two to line up, and often they do. But it's common to meet someone who keeps two weeks of groceries in the pantry and pays every bill the day it arrives, yet has savings set up for a lot of ups and downs. The opposite happens too: someone who lives spontaneously day to day, while their money is set up very cautiously.
Why the two can drift apart
A gap usually isn't something anyone chose on purpose. A few common reasons:
1. Defaults. Many workplace retirement plans place new savers in a default option at sign-up. That option may or may not reflect how you actually feel about risk, and plenty of people never look at it again.
2. Life moved on. A new job, a business, a growing family, or just years going by can change your situation, while your money may still reflect who you were when you last looked.
3. Someone else set it up. A spouse, a former employer, or a relative may have made the choices. That's normal, but it means your money may reflect their comfort with risk, not yours.
4. Headlines. News and big events can lead people to make money decisions in a hurry. Those choices can stay in place long after the moment passes.
5. Different parts of life just feel different. It's very common to be careful in one area and bold in another. That isn't a problem in itself. It's just worth knowing.
A gap isn't good or bad
This is the most important point: a low score isn't bad, and a high score isn't bad. A cautious person with cautious money has two scores that match. So does a bold person with bold money.
What matters is awareness. If your money is set up for more risk than you take in everyday life, a down year could move your account more than your everyday instincts expect. If your money is set up more cautiously than you live, that's worth knowing as well. Every approach has trade-offs, caution included.
Knowing where you stand, on a calm day, makes it easier to think things through before a stressful week ever arrives.
Try the check: "Does Your Money Match Your Life?"
We built a short check to make this comparison simple. It's free and takes about six minutes. Take the check here.
Here's how it works:
1. Personal Risk Comfort: 10 quick questions about everyday life, like gas, deadlines and bills.
2. Money Risk Level: about 12 questions about your plan, your views and what you own. A guess is fine, and so is "Don't know."
3. Your result: both scores on a 0 to 100 scale, the gap between them, and what it means. We also email your results to you.
There are no right or wrong answers.
Questions worth sitting with
Whatever your result, these are useful starting points:
- Do you know how your current mix was chosen, and who chose it?
- When did someone last look at how your money is set up?
- If a partner or family member handles your money, have you compared notes on how each of you feels about risk?
These are questions to think about, not instructions. There's no single right answer for everyone.
Where Enhance Finance fits in
Enhance Finance LLC provides tax preparation and small-business finance consulting in the Danbury area. If you'd like to talk through your two scores, you can book an intro call and we'll walk through them with you. For questions about specific investments, we'll point you to a licensed investment professional.
Curious where you land? Take "Does Your Money Match Your Life?" now.
Education only. This article and the check compare how cautious or bold you are in everyday life with how much risk your money is set up for today, based only on your own answers. Nothing here is investment, tax or legal advice, a prediction of future results, or a recommendation to buy, sell, hold or change any investment. Enhance Finance LLC provides tax preparation and small-business finance consulting and does not provide investment or securities advice. For questions about your investments, please talk with a licensed investment professional.