5 Strategies for Managing Your Changing Risk Tolerance

Saving and investing for short, medium or long-term goals involves a series of trade-offs to design an appropriate asset allocation. Important to creating that asset allocation is understanding your risk tolerance and how it can evolve over time.

Risk tolerance is highly personal. To correctly identify your risk tolerance, you must not only understand how you react to risk, but also how the market environment and your investment experience have impacted you. Risk tolerance also must take into account your investment goals, your age and how much you have in savings.

Because these factors are always changing, your risk tolerance can't be static. If you set it and forget it, you could find yourself on the wrong side of a market drop with a strategy that doesn't fit anymore.

Taking the temperature on your risk tolerance on a regular basis ensures that your risk tolerance, your asset allocation and your investment portfolio stay in alignment. If -- or when -- your