Most people describe their investing style using familiar labels like aggressive, moderate, or conservative. While these terms are common, they don’t reflect how risk actually works inside a financial plan—especially for those approaching retirement or already drawing income. A strong plan looks at risk from three key angles: your risk tolerance, your risk capacity, and your need to take risk.

Understanding each part helps create a strategy that fits both your comfort level and your long-term goals.

1. Risk Tolerance: How You Feel About Market Volatility

Risk tolerance is your emotional response to market swings. Two investors can have the same portfolio but react very differently to a 15% decline. If your investments carry more volatility than you can live with, it becomes harder to stay invested long enough for your plan to work.

A well-designed financial plan uses conversations, tools, and real-life examples to reveal your true tolerance for ups and downs. This is a major part of any solid team-based planning approach.

If you’re unsure how much volatility you can comfortably handle, reviewing your broader financial planning strategy can help bring clarity.

2. Risk Capacity: What Your Financial Plan Can Support

Risk capacity reflects your financial ability—not emotional willingness—to take risk while still being on track.

Your capacity depends on factors such as:

  • The size of your portfolio compared with spending
  • Reliable income sources like pensions or Social Security
  • Your retirement time horizon
  • Your flexibility in reducing spending during downturns
  • Your cushion in cash or high-quality bonds

This analysis ties directly into core planning areas such as:

Someone with a large portfolio and modest withdrawals may have a high capacity for risk. Others with tighter margins may need lower-risk allocations to protect their long-term success.

For deeper insights, many clients use a portfolio review and analysis to quantify their true risk capacity.

3. Need to Take Risk: How Much Growth Your Goals Require

Your “need” to take risk is based on what it will take to fund your lifestyle, retirement, and legacy objectives.

This includes goals like:

Some people take more risk than they need to. Others may need more growth to reach their goals, adjust their spending, or delay retirement. The firm regularly posts related insights in the news section.

How These Three Elements Work Together

Your ideal investment strategy is found where all three elements overlap:

  • You can emotionally tolerate the volatility.
  • Your financial plan can support the level of risk.
  • You’re taking enough—but not excessive—risk to reach your goals.

When one part is misaligned, challenges appear:

  • High tolerance, low capacity: You’re comfortable, but your plan may not be.
  • Low tolerance, high need: Your goals may require more growth than you’re comfortable taking on.
  • High risk, low need: You may be taking unnecessary chances with your portfolio.

Balancing all three reduces stress and increases the likelihood your financial future stays on track. This is central to the firm’s philosophy of leading with a financial plan rather than chasing the hottest investments.

Our Approach to Managing Risk in Your Plan

At Genesis Wealth Management Group, risk planning is handled through a coordinated, team-based approach. We work with clients to:

  • Understand their comfort level with risk
  • Determine their financial capacity based on cash flow, assets, and income
  • Identify the level of return needed to pursue long-term goals

This approach ties directly into broader areas of planning, including:

If you’d like to understand how these three elements apply to your own situation, we’d be happy to discuss your goals in more detail. Schedule a phone call to review your plan and risk profile.