What Does the Pandemic Teach Us About Risk Tolerance?

"I'll do what I'm allowed, but no more."

You have friends who understand "bubbles." This is limited to immediate family. No one else gets into the house. They will have meals together. If they venture out to a restaurant, it's outdoor dining only. They are trying for life as normal, but taking baby steps. They wash their hands frequently, wear masks and keep the six-foot distance.

Investing world: Remember "have your cake and eat it too?" These are your growth and income investors. They understand how you can get most of the return growth offers, but they are more comfortable with a lower level of risk. They like total return stocks. They see bonds as shock absorbers in the portfolio.

"I'm not happy, but I've got to do something."

These friends shop early at the supermarket, before crowds gather. They avoid shopping malls because these spaces are indoors and they don't need to buy anything. They will meet up with you, but keep their masks on, regardless of distance. They've gone out shopping and bulk bought everything they might need in case we get another lockdown.

Investing world: The income investor is one step away from the capital preservation investor. They traditionally like bonds with a maturity within their lifetime. They want to know when they will get their money back. They know the stock market offers the potential for higher returns, but they like certainty.

"I'm afraid to leave the house."

As restrictions loosened, you got in touch with various friends. Some said they were continuing to self-isolate at home. You might have mentioned a favorite restaurant to friends, and how they added indoor dining capacity. Your friend said: "I haven't been to a restaurant since February."

Investing world: That's easy. It's the capital preservation investor. If risk is like the gas gauge on your car, their tank is empty. If they aren't leaving the house, they likely aren't buying something where they could lose money.

Related: Advisors Get an 'A' From Investors on Pandemic Response: Survey

We've learned a few things. People's behavior in one instance gives a good indication of their behavior in another. It also lets us know the investor who claims they are aggressive in a roaring bull market, yet won't leave the house during the pandemic, might not understand stock market risk very well. This could be a good opportunity to realign their portfolio with their tolerance for risk. You might also point out investments they own that are inconsistent with their appetite for risk.

Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book, "Captivating the Wealthy Investor," is available on Amazon.