“I’m not comfortable even eating outdoors at restaurants,” said my husband, Peter, right after returning from a Home Depot Trip. As we have all noticed, everyone has a different Covid risk tolerance, and it’s frequently inconsistent. It’s much the same with risk tolerance when considering investments and asset allocation. In both, personal comfort isn’t all that matters and often an expert opinion, as well as historical research, can save someone from themselves.

On a day to day basis, couples may express differences in their Covid risk tolerance. I’m perfectly content eating outdoors at restaurants and visiting family and friends, but Peter prefers to stay home. Our lifestyle allows us to achieve an acceptable balance. Similarly, a range of risk tolerance scores can result in a successful financial plan. For example, my clients’ Bill and Sue’s flexible plan achieved a strong probability of success of 90% and could easily accommodate both his more conservative 50% equity/50% bonds and cash asset allocation and her moderate 65% equity/35% bonds and cash asset allocation. They split the baby and went 58%/42%.

There are times, unfortunately, when an individual’s risk tolerance combined with their plan goals will not generate an acceptable probability of success. An aggressive 80% equity/20% bond allocation may result in a 65% probability of success. In Covid terms this is akin to an 80-year-old wanting to attend a crowded indoor concert without a mask, aka my Uncle Fred. In these instances, an expert opinion may help the individual make a decision that will preserve their well-being. Dr. Fauci would recommend that Fred stay home and provide plenty of statistics to back up his advice.

Investors on the cusp of retirement who are comfortable with the financial market’s volatility and whose personal experience has yielded market success in the past will often present like Uncle Fred. They are comfortable with and willing to take more investment risk than a successful financial plan will allow. Asset allocation can make or break a retirement plan in early retirement due to sequence risk. Neither Uncle Fred nor the pre-retiree perceive the real risk they are taking. Uncle Fred is risking his life and the aggressive pre-retiree is risking running out of money. Like Dr. Fauci, it’s my job to illustrate the possible plan outcomes and make recommendations for mitigating the unacceptable risks.

My investment recommendations to lower portfolio risk are frequently to diversify and reduce exposure to equities, especially when they are in a concentrated position. This is the Covid equivalent of staying home and wearing a mask. Uncle Fred complains that masks are uncomfortable, and the aggressive investor may gripe about the very low interest rates he can earn on his bond portfolio. Well I’ve got good news for both—those distasteful remediation techniques will be temporary!

Once the investor makes it through the first ten years of retirement he can “take off his mask” and return to taking more equity exposure, and once the vaccine has been distributed and the virus is under control, Uncle Fred can head out for a night of fun.

While the temporary restriction may feel stifling and eternal, a little patience can result in both a successful financial plan and an acceptable life expectancy.