In my line of work, understanding risk tolerance is all about stepping away from biases and preconceived notions and putting myself in the mindset of my client. With experience comes trust. When you deal with many different types of clients, you learn how to allay fears and to prevent procrastination in the service of crafting and implementing a successful financial plan.
Designing a good plan or investment portfolio is a combination of selecting the right products and solutions and having a team approach to execute it effectively. As with sports, good teams have the right fit of personality types. Each player needs to maintain clear communication about the intended goals.
Of course, there will be unexpected twists and turns over time. Static planning doesn’t work in real world applications. Success is a combination of getting all the small details right and being flexible to adapt to changing circumstances.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
It's just like rock climbing. Really. Let me explain.
In March, I enrolled in rock climbing school with the Arizona Mountaineering Club. Most of the students had some experience (mostly indoor climbing in a gym) and wanted to gain technical skills and be safe climbing outdoors. I wanted to conquer my fear of heights and get outside my comfort zone.
During our first outdoor climb, other students tried to calm me by saying I would be anchored in at all times, safely tethered on a rope. Yet I could tell by their questions and comments that they didn’t understand the irrationality of my fear. That realization gave me a better understanding of the fears of my clients regarding market downturns or running out of money in retirement. Never mind that their fears were sometimes unwarranted or exaggerated. Risk is often in the eye of the beholder.
At the end of rock climbing class, we were asked to pick a graduation climb. I chose Camelback Mountain in Phoenix for three reasons: 1) I pass this iconic landmark with sheer cliff faces on my daily work commute and thought it might be fun to relive the experience every time I drive past it; 2) it was a challenging six-hour multi-pitch experience of rugged hiking and climbing; and 3) the lead instructor for the class would be the guide on this climb. The last point was especially important to me. I wanted to have a familiar and trusted member of the team with me on this journey. It helped calm my fears—the same thing a trusted adviser can do for a client who is uncertain about the financial future.
I have been a victim of procrastination in the past. Sometimes it is the fear of the unknown, other times it is pure laziness. My clients display the same behaviors in their financial planning. But one thing became readily apparent as I learned to climb—waiting is never an option. You do it in the moment, or you probably never do it. Going first and not having time to think about the consequences worked really well. Too much overthinking is never good for any plan.
Climbing is very gear-intensive. Learning to trust your equipment is vital to enjoying the sport and, in my case, working through the fear of heights. Although the school had rental equipment to buy, most of us wanted to purchase our own harnesses and other safety gear so we could learn how it worked for us.
Another takeaway emerged for me: Trusting your financial plan or investment “equipment” in the form of selecting investments in a portfolio can certainly help maintain long-term success. The last thing you want to do is question whether you are in the right products or ones you don’t understand during periods of stress.
Having a strong team can make all the difference in success, too. I was paired with several different students during the class. Some were a good fit; others, not so much. The president of the climbing school told me that when someone is belaying you on a climb (belay is the safety procedure), you are forming a contract with that person to keep you safe during the climb. Both climber and safety need to understand and respect when the contract starts and when it ends. Clear communication is vital.
Likewise, clients and advisers need to have the right personality fit and respect each person’s role. I am less inclined to work with someone that I don’t respect or trust after my climbing experience.
And just as with personal finances, sometimes what you fear the most isn’t what can get you in trouble. Take bees, for example. My big fear as a rock climber was the heights issue and physically not being able to complete a climb. But we learned in class that swarming bees can be a dangerous hazard for climbers, who can become disoriented and lose safety on a climb. Some have died from falls after being swarmed by bees. This insight gave me a newfound respect for dealing with the unexpected and finding new tools to help model different outcomes for my clients who are concerned with issues such as running out of money in retirement.
On the graduation climb, we had to navigate a series of steep approaches. Several times we switched from hiking boots to climbing shoes to get better grip. We reached the top. Scaling a 2,700-foot peak pumped most of us full of confidence. But the hardest part was yet to come.
Coming back down the mountain proved to be terrifying for some of my fellow climbers. Afraid of slipping, several students tried to navigate a steep 20-foot decline on their rear ends instead of trusting the techniques they had learned and their specialized shoes.
My thought was, “How can this 20-foot stretch hurt me after everything that happened all day?” A final lesson: Success in any endeavor is getting a lot of small steps done correctly, even if they are not the most glamorous part of the journey.
Robert Altshuler, JD CLU CHFC, founder of PlanningCore Wealth Advisors, LLC, provides investment and estate strategies to entrepreneurs, executives and affluent families in Phoenix, Arizona.
-
Walmart's Transformative Ways Spark a 100,000% Stock ReturnWalmart's strategic store expansion and relentless cost-cutting have catapulted its share price over the years.
-
What DOGE is Doing NowThe Kiplinger Letter As Musk's DOGE pursues its ambitious agenda, uncertainty and legal challenges are mounting — causing frustration for Trump.
-
How Roth Accounts Can Ease Your Tax Burden in RetirementStrategic Roth IRA conversions can set you up for tax-free income in retirement and a tax-free inheritance for the people you love.
-
Are You a High Earner But Still Broke? Five Fixes for ThatIf you're a HENRY (a higher earner, not rich yet) but feel like you still live paycheck to paycheck, there are steps you can take to get control of your financial future.
-
Tax Diversification: Smart Ways to Preserve Your Nest EggA long and active retirement may be costly — and may even bump you into a higher tax bracket. Paying some taxes on your savings now could be the answer.
-
How to Thrive in Retirement: Balancing the TradeoffsTo cultivate a happy retirement, you need to tend to it as carefully as you would a flourishing garden, and that means making the right choices for you.
-
Kick the IRS to the Curb in RetirementThat 401(k) or traditional IRA you've filled with your hard-earned money could turn into a tax bomb. Before it blows, see if a Roth could help rescue you.
-
How to Stop Scammers Targeting Your Retirement SavingsAnyone can fall victim to a financial scam, but retirees can be more vulnerable than most, so stay alert to these common tricks that could catch you off guard.
-
Choosing a Trustee? These Six Tips Can Help You Pick WiselyHow can you be sure a trust will be managed properly, without causing a headache for the beneficiaries? The key is choosing the right trustee (and a backup).
-
Five Things That Are Spiking Your Insurance PremiumIt's a drag, but just as your expenses keep rising, so does the cost of doing business as an insurance company. That means higher premiums.
