What Your Portfolio Says About You and Your Relationship with Risk

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They say you are what you eat – but you may also be what you invest in.

That's because your investment choices reveal more than just your portfolio's strategy. They can reflect your personality, your fears and hopes, and most importantly, your relationship with risk.

But while 80% of consumers understand the concept of investment risk, according to a FINRA survey, only 55% can identify ways to manage it.

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"Most investors overestimate their risk tolerance," says Scott Bishop, partner and managing director at Presidio Wealth Partners. "They only confront their true limits when markets turn volatile and fear of loss kicks in – hindsight is a harsh teacher."

Philosophers say to "know thyself." And if the sudden market swings from this spring's tariff uncertainty taught investors anything, it's that knowing yourself better might be long overdue.

With bitcoin surging past $100,000, meme stocks still in the headlines, and a handful of tech stocks powering most of the market's growth, many portfolios may be far more aggressive than their owners realize or truly want.

As the financial writer known pseudonymously as Adam Smith once wrote: "If you don't know who you are, the stock market is an expensive place to find out."

So what is risk tolerance, really? What do your investments say about you? And how can you align your strategy with your true self without getting swept away by the moment?

What is risk tolerance, and how can you really know yours?

Risk tolerance is often treated as an emotional trait: How much market volatility can you stomach without losing sleep? But financial advisors say it's more nuanced than that.

According to Tricia Rosen, CFP® and principal at Access Financial Planning, true risk tolerance involves a combination of three key factors:

"One is the emotional component, or sleep-at-night factor, which most investors have some self-awareness about. But the other two factors are: how hard the portfolio needs to work to meet the investor's goals, and how much risk the investor can absorb without derailing those goals. All three need to be taken together to determine the appropriate risk level."

In simpler terms, it's how much risk you're willing to take, how much risk you need to take and how much risk you can afford to take.

That's why many advisers don't stop at a multiple-choice questionnaire. Tools like online quizzes, simulations and behavioral profiles are helpful starting points. But a deeper, more personal assessment often uncovers what really drives investor behavior.

As Bishop puts it: "Accurately assessing risk tolerance is possible, but it requires probing beyond questionnaires. Asking clients to weigh the pain of missing out on a hot trend like bitcoin versus the dread of a 30% portfolio plunge reveals their emotional drivers."

In short, you may not know your true risk tolerance until it's tested in the wild. That's why advisers emphasize understanding not just how your portfolio is performing, but why you own what you own.

What do your investments say about you?

Risk is essential to reward. Even in retirement, when preserving wealth becomes a priority, investors still need exposure to risk to grow money. But when people don't fully understand their risk tolerance, they might rely on instinct. And that instinct is often shaped more by identity than by strategy.

Take some of today's buzziest assets: bitcoin, gold, meme stocks. They're generally speculative and volatile. And they don't always move in step with economic fundamentals. But what they may offer most is narrative, something investors can believe in.

"Fear and greed, particularly FOMO (fear of missing out), fuel fixations on assets like gold, bitcoin or meme stocks," explains Bishop. "These preferences expose deeper worldviews. Gold reflects fear of economic collapse. Bitcoin signals distrust in fiat currency. Meme stocks chase ambitious, almost rebellious dreams of beating the system."

In the case of meme stocks, the emotional pull is turbocharged by social media. A study by the Federal Reserve Bank of St. Louis found that the rise of GameStop's (GME) stock in early 2021 wasn't tied to company news or economic trends. Instead, the price increase closely tracked the volume of social media posts about the company.

That doesn't mean these investments are inherently wrong. But they do carry unique risks and often attract investors for reasons that have more to do with belief than with balance sheets. Unless your investment decisions are grounded in value and purpose, you may struggle when volatility hits.

"Without conviction behind value and usefulness," says Luke Harder, CFP® and wealth advisor at Claro Advisors, "it's almost impossible to weather the storm."

Building a portfolio that fits who you are

An appetite for risk isn't a bad thing. In fact, research shows that curiosity about unconventional or high-growth assets can be the sign of an engaged investor. The trouble starts when those riskier bets dominate your portfolio, advisers say.

"A fixation on 'hot' assets can be healthy if it's a small, calculated part of a diversified portfolio," says Bishop. "But it's a red flag when greed overrides discipline, leaving investors vulnerable to devastating losses."

Harder echoes that sentiment: "There's room for high-risk assets in a portfolio – if the investor understands the risks, the role those assets play and how different return scenarios could affect their financial future. The key is intentional allocation, not blind chasing."

So how do you strike the right balance?

For those who crave more risk, Rosen recommends creating a separate space to experiment, without risking your long-term goals.

"My risk-loving clients have a small percentage of their assets in what I call a 'sandbox account,' where they can trade to their heart's content," Rosen explains. "If the sandbox went to zero, it wouldn't negatively impact their financial plan. They can satisfy their need for speed and not do any significant damage."

Otherwise, the fundamentals still matter. Diversification, patience and a long-term view remain the bedrock of a strong investment strategy. "Slow and steady is still the most effective way to meet your financial goals," Rosen adds.

That strategy only works, however, if it's aligned with who you really are and not who you think you are. As Harder puts it: "True investing discipline comes from matching your portfolio to your real behavioral tendencies, not your imagined ones."

Jacob Schroeder is a financial writer covering topics related to personal finance and retirement. Over the course of a decade in the financial services industry, he has written materials to educate people on saving, investing and life in retirement.

With the love of telling a good story, his work has appeared in publications including Yahoo Finance, Wealth Management magazine, The Detroit News and, as a short-story writer, various literary journals. He is also the creator of the finance newsletter The Root of All (https://rootofall.substack.com/), exploring how money shapes the world around us. Drawing from research and personal experiences, he relates lessons that readers can apply to make more informed financial decisions and live happier lives.