Risk Tolerance: The Financial Planning Concept That Needs a Reality Check
Risk is reframed as something necessary for financial success. It's not.
TL;DR
Ever had that nagging feeling that something wasn't quite right when your financial advisor handed you that risk tolerance questionnaire? Your instincts were spot on. After all, who actually wants to lose money? The truth is, the entire concept of "risk tolerance" has been carefully crafted by the financial industry to make us accept losses as normal and necessary – but they're not.
Read this week's newsletter to discover how tools like whole life insurance and The Infinite Banking Concept let you build wealth with guarantees and control so you can stop wondering how much money you're willing to lose and start focusing on how much wealth you want to build.
When was the last time you consciously chose to lose money?
If you're like most people, the answer is never. Yet somehow, when we sit down with financial planners, we're asked to fill out "risk tolerance" questionnaires that essentially ask us how comfortable we are with losing money. It's time we took a hard look at this strange phenomenon and what it means for your financial future.
The Risk Tolerance Myth
Every financial advisor's first move seems to be handing you a risk tolerance questionnaire. These forms, often filled with hypothetical scenarios about market performance, claim to measure your comfort level with investment risk. But the thing is, I think the entire concept of risk tolerance itself is fundamentally flawed.
The financial industry has masterfully reframed risk as something desirable, even necessary, for financial success. We've all heard the mantra: "Higher risk equals higher returns." But this oversimplified equation ignores a crucial truth – there is no direct correlation between risk and return. What exists is a relationship between volatility and potential return, but “potential” is the operative word here.
Redefining Risk in Financial Planning
Risk, in its purest form, is the probability of loss. Period. It's not a complex financial concept – it's that simple. But when's the last time your financial advisor put it that plainly?
The problem goes deeper than mere definitions. The financial industry has conditioned us to accept risk as inevitable, even desirable. We've been, as some might say, "brainwashed into the idea that you have to take risks to get higher returns." This mindset has become so pervasive that questioning it feels almost heretical in financial planning circles.
The Foundation of Financial Security: Whole Life Insurance and The Infinite Banking Concept®
What if there was a way to build wealth without surrendering to the traditional risk-return paradigm? This is where whole life insurance and The Infinite Banking Concept (IBC) enter the picture. Together, they provide something remarkable: a foundation of safety and liquidity combined with a process for maintaining control and creating safe leverage.
Whole life insurance serves as your financial bedrock, offering:
Guaranteed cash value growth
Death benefit protection for your family
Tax-advantaged accumulation
Protection from market volatility
Contractual guarantees from a mutual insurance company
But it's when you implement The Infinite Banking Concept that these benefits truly multiply. IBC isn't just about having a whole life policy – it's about using that policy as your personal banking system. This approach gives you:
Complete control over your banking function
The ability to create safe leverage through policy loans
A systematic process for building wealth without market risk
The opportunity for uninterrupted compound growth
A strategic framework for making financial decisions
Beyond Market Risk: A Broader Perspective
When we talk about financial risk, the conversation typically centers on market volatility. However, this narrow focus obscures other crucial types of risk that can impact your financial well-being:
Health risks that could affect your earning capacity
Political risks that could impact tax rates and policies
Liquidity risks that could leave you unable to access your money when needed
Sequence-of-returns risk that could devastate your retirement plans
With IBC and whole life insurance as your foundation, you're better positioned to handle these risks. Your policy's guaranteed cash value provides a volatility buffer, while policy loans offer flexibility and control that traditional banking relationships simply can't match.
The Foundation-First Approach
Instead of starting with risk tolerance, what if we began with a foundation-first mindset? This approach prioritizes:
Establishing guarantees in your financial life through whole life insurance
Maintaining control over your assets through the IBC process
Ensuring liquidity when you need it via policy loans
Creating a volatility buffer independent of market performance
Building a “banking system” you control, not one that controls you
This isn't about avoiding all risk – it's about being strategic about where and when you take risks. Having the certainty whole life insurance provides allows you to be more aggressive in other areas, should you choose to be, because you know your core financial needs are protected.
Strategic Growth Without Unnecessary Risk
The beauty of combining whole life insurance with IBC is that it allows you to pursue growth opportunities without exposing yourself to unnecessary market risk. Through policy loans, you can:
Invest in business opportunities
Purchase cash-flowing real estate
Take advantage of market opportunities when others are fearful
Create additional streams of income
All while knowing your primary store of capital remains protected and growing steadily in your policy.
The Retirement Planning Paradox
Perhaps nowhere is the risk tolerance paradox more evident than in retirement planning. Traditional approaches often rely on probabilities and best-case scenarios – a strategy that doesn't make much sense since you only get one shot at getting it right. As retirement expert Wade Pfau points out, unless you have a solid plan to manage volatility in your retirement income stage, you're left with limited options: save more, take more risk, work longer, or reduce your retirement expectations.
But with a properly structured whole life insurance policy and IBC strategy, you have another option: predictable, tax-advantaged income that's not dependent on market performance.
A New Framework for Financial Decision-Making
Instead of asking about risk tolerance, we should be asking different questions:
How much of your financial future are you willing to leave to chance?
What level of control do you want over your assets?
How important is liquidity to your financial peace of mind?
What guarantees do you need to sleep well at night?
Is your need for financing during your life in your control?
Moving Forward
Remember this: You're not required to accept unnecessary risk just because it's industry standard. Consider instead:
Building a strong financial foundation with whole life insurance
Implementing The Infinite Banking Concept to maximize control and efficiency
Creating a volatility buffer through guaranteed cash value growth
Taking a long-term, disciplined approach to wealth building
Focusing on opportunities and flexibility rather than just returns
Risk tolerance shouldn't be about how much money you're willing to lose – it should be about how much control you're willing to maintain over your financial future. With whole life insurance and IBC, you can build that control systematically while maintaining safety and liquidity.
Remember, the goal isn't to eliminate all risk – that's impossible. The goal is to be intentional about our risks and build a strong financial foundation to weather any storm. After all, true financial planning isn't about chasing returns; it's about creating security, maintaining control, and building lasting wealth through proven systems like The Infinite Banking Concept.
What is whole life insurance cash value?
The cash value is one of the most enticing aspects of whole life insurance and, yet, one of the most misunderstood!
Get the real deal on this incredible cash-equivalent asset here:
I’m John Perrings, Authorized Infinite Banking Practitioner and founder of StackedLife. Instead of taking high risk to get a high return, we help our clients implement strategies that create multiple safe returns with the same money. It’s geometric compounding that we call Stacked Interest Acceleration and IBC is the first step.
I’ve implemented IBC for hundreds of my clients and educated thousands more via my podcast, articles, and courses at StackedLife.com.
Get my free mini-course, Adding Certainty to Supercharge Growth.