I know Betterment has its drawbacks (I pay a fee!) but one thing I like about it is that (at least when I signed up) its initial questionnaire was less about risk tolerance and more about investing horizon. Not planning on touching your money in the next 40 years? Go 90/10 stocks. Trying to buy a house in the next five? Go 70/30 to start and get more cautious as you get closer to entering the market. I was also reading personal finance books at the time, so maybe I was primed to accept a 90/10 split for my long-term investments even though I am most definitely risk averse. But especially after reading this newsletter I appreciate that advice!
Oh, that sounds like a much more sane and sensible way to assess risk! Betterment knows their customer base and I bet they have so much juicy data.
Side note: is a fee a drawback? I think Betterment has one of the most rock-bottom rates in the business. I don’t love it when we get caught up in this narrative of “everything should be free if you can figure it out yourself.” With money especially, you get what you pay for :/
This is a fascinating point about risk tolerance questionnaires and women. It reminds me of a point Cat Bohanon made in her book, "Eve," about all the medical research being done for men by men (hence why no one understands what's happening when a woman has a heart attack). If you haven't read it: https://www.catbohannon.com/
What's a good alternative to risk tolerance questionnaires from your perspective? I'm a fan of "revealed preferences," but to your point, you have no preferences if you haven't experienced risks.
@Ally Jane Ayers, this piece just showed up in my feed. How men and women perceive stock market risk is interesting. Men gambling on sports can exist among those same men who are not otherwise risk takers with other aspects of their life. But, I get your point. Thought you would have an interesting take on this research from notable academics on the role of testostestone levels and financial risk. https://www.pnas.org/doi/10.1073/pnas.0907352106
I know Betterment has its drawbacks (I pay a fee!) but one thing I like about it is that (at least when I signed up) its initial questionnaire was less about risk tolerance and more about investing horizon. Not planning on touching your money in the next 40 years? Go 90/10 stocks. Trying to buy a house in the next five? Go 70/30 to start and get more cautious as you get closer to entering the market. I was also reading personal finance books at the time, so maybe I was primed to accept a 90/10 split for my long-term investments even though I am most definitely risk averse. But especially after reading this newsletter I appreciate that advice!
Oh, that sounds like a much more sane and sensible way to assess risk! Betterment knows their customer base and I bet they have so much juicy data.
Side note: is a fee a drawback? I think Betterment has one of the most rock-bottom rates in the business. I don’t love it when we get caught up in this narrative of “everything should be free if you can figure it out yourself.” With money especially, you get what you pay for :/
This is a fascinating point about risk tolerance questionnaires and women. It reminds me of a point Cat Bohanon made in her book, "Eve," about all the medical research being done for men by men (hence why no one understands what's happening when a woman has a heart attack). If you haven't read it: https://www.catbohannon.com/
What's a good alternative to risk tolerance questionnaires from your perspective? I'm a fan of "revealed preferences," but to your point, you have no preferences if you haven't experienced risks.
An alternative is a conversation, one that doesn’t happen just one time. One that happens over time through education and investing. One that evolves.
@Ally Jane Ayers, this piece just showed up in my feed. How men and women perceive stock market risk is interesting. Men gambling on sports can exist among those same men who are not otherwise risk takers with other aspects of their life. But, I get your point. Thought you would have an interesting take on this research from notable academics on the role of testostestone levels and financial risk. https://www.pnas.org/doi/10.1073/pnas.0907352106
I’m timid because I have so little money that I’m terrified of losing any.