Most people probably don’t understand the word “risk” when investing. Risk can be considered the value of something declining or not achieving something.
Some people will talk about understanding your ability to take risk, which is true, but if you can’t stand certain levels of volatility, your ability to take risk makes no difference. If you have low willingness to take risk and someone pushes you to take more risk than you prefer, when market volatility hits and your accounts decline to uncomfortable levels, you will have an emotional reaction and want to reduce the pain. Based on this author’s experience, when investors make emotional investment decisions and get off of their investment investment tied to their financial plan, then the financial plan gets derailed because you didn’t follow the investment plan.