Quiz: What’s your true risk tolerance?

Answering these questions can help you get a better handle on how you really feel about the market’s ups and downs and what that might mean for your investing decisions.

July XX, 2026

By the Chief Investment Office, featuring Anil Suri, head of Asset Allocation and Portfolio Construction Analytics

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MARKET SWINGS ARE A NORMAL PART OF INVESTING, but how you respond to volatility can have a lasting impact on whether you reach your financial goals. And when it comes to investing in stocks and bonds, your feelings, while crucial, tell only part of the story.

What is risk tolerance — and why does it matter?

Risk tolerance is the level of investment risk you are willing — and able — to take. It includes two key components:

Risk willingness: How comfortable you feel about market ups and downs
Risk capacity: How much risk your financial situation can support, based on your goals, time horizon and liquidity needs

Both matter. Your investment strategy should reflect not only how you feel about risk but also what your financial situation allows. “Understanding both willingness and capacity is useful as you seek to invest in a way that fits your overall financial picture and that feels comfortable for you,” says Anil Suri, head of Asset Allocation and Portfolio Construction Analytics in the Chief Investment Office (CIO) for Merrill and Bank of America Private Bank.

Determining your risk tolerance can help you:

Stay focused on long-term goals during periods of market volatility.
Make more informed investment decisions about allocating your portfolio between stocks, bonds and cash.

Avoid reacting emotionally to short-term market movements.

Test your risk tolerance

Select the response that best reflects how you would react to each scenario and discover strategies to consider based on what your choice says about your risk tolerance.

Understand your investment mindset

Question 1: How do you react to short-term market declines?

You want to keep at least $100,000 in an investment account. After a market dip, the value falls to $95,000. What do you do?

What this says about your risk tolerance:
You may have a higher tolerance for market volatility and a long-term investment perspective.

Why it matters:
Market rebounds have historically followed downturns, and remaining invested can help you participate in a potential recovery. Stocks may be more susceptible to short-term volatility than bonds and cash are, but over the long term, they have tended to offer significantly higher returns.¹

Strategy to consider:
Stay diversified, but don’t assume you should hold on to every investment, no matter what. Periodically review your portfolio. To become more comfortable with regularly weeding unproductive assets, consider taking advantage of tax-loss harvesting, a strategy that involves selling some investments at a loss to offset capital gains taxes on others.

What this says about your risk tolerance:
You may have a lower tolerance for short-term losses, which can lead to more cautious decision-making.

Why it matters:
By selling hastily during market declines, you may lock in losses as well as reduce your ability to benefit from a recovery. Remember: Despite their volatility, stocks remain essential to pursuing long-term growth.

Strategy to consider:
Align your portfolio with your financial goals and time horizon. With a risk-appropriate portfolio, you’re less likely to make reactive decisions during periods of volatility. Also, consider whether you have sufficient cash in other, more liquid accounts so that you don’t have to sell to cover short-term spending needs.

Question 2: How do you approach risk versus reward?

You’re given two options:

Receive $20 for certain.
Flip a coin to receive $100 — or nothing.

Which do you choose?

What this says about your risk tolerance:
You may be more comfortable accepting uncertainty in pursuit of higher returns.

Why it matters:
While you may be willing to accept a higher level of risk to achieve your goal, this is a hypothetical scenario involving small dollar amounts. Your willingness to take risks may change depending on the stakes.

Strategy to consider:
An aversion to losses often rises with the dollar amounts involved. What if the choice were $2 million versus $10 million or nothing? In an investment setting, suddenly realizing you’re not as risk tolerant as you thought could lead you to make hasty decisions. Your advisor can help you better understand your feelings about risk under various scenarios and conditions.

What this says about your risk tolerance:
You may prioritize certainty and stability over potential gains.

Why it matters:
Many investors feel losses more strongly than gains. Understanding this tendency can help you shape an investment strategy that feels more comfortable.

Strategy to consider:
A diversified portfolio that includes stocks, bonds and cash may help balance growth potential with stability. Still, a too-conservative portfolio carries its own risks. A seemingly safe cash portfolio may not keep pace with inflation, let alone provide you with future growth. Don’t abandon stocks altogether.

Evaluate your risk capacity

Question 3: How important is your financial goal?

Think about a goal such as retirement, buying a home or funding education.

What this says about your risk capacity:
You may need a more balanced approach, prioritizing stability alongside growth.

Why it matters:
For high-priority goals, a strategy of holding stocks, bonds and cash can help protect against major losses while helping to minimize losses.

Strategy to consider:
Becoming too conservative or delaying investing over fears of volatility could impede reaching your goals. A consistent investing approach like dollar-cost averaging, which involves investing regular amounts at specific intervals, could help you stay on track.²

What this says about your risk capacity:
You may have more flexibility to take on risk.

Why it matters:
Less essential goals like saving for a vacation home can sometimes support more growth-oriented strategies.

Strategy to consider:
Consider a higher allocation to equities, including allocations to higher-risk, potentially higher-growth investments such as small-cap stocks. But be sure it doesn’t increase your overall portfolio risk beyond your comfort level. An advisor can help you find a comfortable balance.

Question 4: What is your investment time horizon?

How long do you have before you need the money — for retirement, for example?

What this says about your risk capacity:
You may need to reduce exposure to stock market volatility as your goal approaches.

Why it matters:
Short-term market declines close to your goal can affect your ability to meet your income needs.

Strategy to consider:
Consider shifting toward more income-generating investments such as bonds as retirement approaches. But avoid becoming too conservative — for a retirement lasting 20 or 30 years, you’ll need some exposure to stocks to help your portfolio continue to grow.

What this says about your risk capacity:
You may have more time to recover from temporary market downturns.

Why it matters:
A longer time horizon can support a greater allocation to growth-oriented investments.

Strategy to consider:
Maintain a diversified portfolio that balances growth and stability — and adjust over time. Even with a high tolerance for risk, be careful not to invest too aggressively. That’s true especially as you’re approaching when you’ll need the money. Meet regularly with your advisor to discuss any needed changes.

Next steps: Apply your results

Your answers to these four questions help define your overall risk profile, which includes:

Your tolerance for market volatility
Your capacity to take on risk given your financial goals and priorities and your investment timeline

Based on this quiz, you may find you have a high tolerance for risk but a low capacity to take it on, or you’re somewhere in the middle. But that’s a mindset. “Risk tolerance really comes to life when it’s tied to a clear personal goal, not just as some general trait,” says Suri.

“While you may consider yourself conservative, moderate or aggressive, the risk level that’s right for you depends on a wide variety of factors,” he adds. Those include the amount you are investing, your time horizon, your cash flow needs — and what goal you’re investing for. For instance, you may have a lower risk tolerance for funds earmarked for a home down payment than you have for retirement savings if that life stage is years away. (Want to pressure test your retirement plan? Take our Retirement Readiness quiz.)

To apply what you’ve learned about your risk tolerance to your investment strategy, consider these asset allocations for various risk levels.

Find the asset allocation that fits your risk tolerance

A sample asset allocation for a conservative investor is 22% in stocks, 73% in bonds and 5% in cash. Source: Chief Investment Office, January 2026. The strategic allocations shown here are designed as guidelines for a 25-year investment horizon for investors with low tax sensitivity.

A sample asset allocation for a moderately conservative investor is 41% in stocks, 58% in bonds and 1% in cash. Source: Chief Investment Office, January 2026. The strategic allocations shown here are designed as guidelines for a 25-year investment horizon for investors with low tax sensitivity.

A sample asset allocation for a moderate investor is 57% in stocks, 42% in bonds and 1% in cash. Source: Chief Investment Office, January 2026. The strategic allocations shown here are designed as guidelines for a 25-year investment horizon for investors with low tax sensitivity.

A sample asset allocation for a moderately aggressive investor is 73% in stocks, 26% in bonds and 1% in cash. Source: Chief Investment Office, January 2026. The strategic allocations shown here are designed as guidelines for a 25-year investment horizon for investors with low tax sensitivity.

A sample asset allocation for an aggressive investor is 90% in stocks, 9% in bonds and 1% in cash. Source: Chief Investment Office, January 2026. The strategic allocations shown here are designed as guidelines for a 25-year investment horizon for investors with low tax sensitivity.

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Note: These allocations may be subject to change based on periodic review and are for illustrative purposes only. Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.

Your advisor can help you assess your feelings on risk and how you’re likely to respond to volatility and other variables, says Suri. “Remember, investing always involves some risk. But, together, you can build strategies designed to help you stay on track during the market’s ups and downs.”

Key takeaways

Risk tolerance is not just emotional — it’s also financial.
Market volatility is a normal part of investing in stocks and bonds.
A well-aligned portfolio reflects your long-term goals, your investing timeline and your comfort with risk.
Your risk tolerance becomes most meaningful when tied to a specific financial objective.

Frequently asked questions

What is risk tolerance in investing?

Risk tolerance is your willingness and ability to endure fluctuations in the value of your investments.

What’s the difference between risk tolerance and risk capacity?

Risk tolerance reflects how you feel about market volatility. Risk capacity reflects your financial ability to handle it.

Why does risk tolerance matter?

It helps guide investment decisions, including asset allocation and how you respond to market volatility.

Can my risk tolerance change over time?

Yes. Changes in life stage, goals, income or market conditions can all influence your risk tolerance.

¹Merrill, “Steer the Course of Your Financial Future: A Guide for Long-term Investors,” August 12, 2025.

²A periodic investment plan such as dollar-cost averaging does not ensure a profit or protect against a loss in declining markets. Such a plan involves continuous investment in securities regardless of fluctuating price levels; investors should carefully consider their financial ability to continue their purchases through periods of fluctuating price levels.

Important information

Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results.

BofA Global Research is research produced by BofA Securities, Inc. ("BofAS") and/or one or more of its affiliates. BofAS is a registered broker-dealer, Member SIPC, and wholly owned subsidiary of Bank of America Corporation ("BofA Corp.").

Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss in declining markets.

This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America") and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S" or “Merrill"), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.

Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in a certain industry or sector may pose additional risk due to lack of diversification and sector concentration. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Stocks of small-cap companies pose special risks, including possible illiquidity and greater price volatility than stocks of larger, more established companies.

Diversification does not ensure a profit or protect against loss in declining markets.

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Quiz: What’s your true risk tolerance?

What is risk tolerance — and why does it matter?