That is correct. My point was that the poster you said “did a good job describing risk tolerance” has stated numerous times that those who sold during the last week were simply rebalancing due to their new risk tolerance based on media reports of the Covid 19 outbreak.Fallible wrote: ↑Mon Mar 02, 2020 12:26 amIf I understand you correctly, I agree that a possible market decline by itself should not affect one's ability (key word here) to tolerate it and I don't know how it could. According to growing research, personal risk tolerance is probably a matter of nature and nurture.coachd50 wrote: ↑Sun Mar 01, 2020 10:01 pmI disagree, because in each instance sambb has included market risk factors in his assessment of personal risk tolerance. Which is inherently wrong, since the tolerance by definition is to market risk (or more accurately, a market decline).Fallible wrote: ↑Sun Mar 01, 2020 9:55 pmYou have described risk tolerance well, and from books and blogs I have read, are in general accordance with pro Bogleheads Rick Ferri, Larry Swedroe, Jason Zweig, Jonathan Clements, etc. Zweig, in particular, described how astonishingly often and quickly our tolerance can change in his book, Your Money & Your Brain, the chapter on "Risk."sambb wrote: ↑Sun Mar 01, 2020 7:01 pm Agree, risk tolerance is the key. And it can change depending on all sorts of things. For instance, lets say you work in the typewriter industry. Your risk tolerance might change as your job contracts. Or you get a large bonus - this gives you more cushion and may alter your risk tolerance. Bear markets, bull markets, life events, children, marriage, divorces, health, geographical trends of your house, your company's competitiveness, and a variety of other events. As your personal risk tolerance changes, one should try to never take on too much or too little risk. Asset allocation adjustments can be needed. Terminal diseases, job changes, disruptions in life or finance, there are just innumerable things that change one's risk tolerance. Its not a list that can be made except individually.
Probably most of the threads on Covid-19 and the market drop are about risk in general and personal risk tolerance, though it's often confused with market timing. The better we understand risk and ourselves, the better chance we have of coming up with an AA to stay the course.
The other factors should indeed be factored in, because they affect ones ability to tolerate a market decline. An increased likely hood of a market decline SHOULD NOT affect ones ability to tolerate a market decline
Obviously people can do what they want to do. There is no “boglehead police” that snatch an investor up for speculation. But I believe it is important to call selling due to Corona fears what it is- speculation or a response to a poorly drafted investment plan or poorly assessed tolerance to a decreasing investment balance.
If the latter, then don’t confuse the situation by mentioning rebalancing or saying things like “black swan changed risk tolerance” as sambbb has done repeatedly. Instead, chalk up the losses as a lesson, and proceed forward with the new asset allocation until new PERSONAL CIRCUMSTANCES arise that might change it. Not new market circumstances.