Allocation and risk capacity
calculatorHow much risk can I take, and how much can I stand?
Separates risk capacity from risk tolerance, takes the lower of the two, and shows the drawdown the result implies.
What drives the answer
When you expect to start drawing on this money.
Drag this and watch risk capacity move — the buffer is what makes risk survivable.
Suggested allocation
- Equities50%($7,500)
- Bonds45%($6,750)
- Cash5%($750)
- Expected return
- 5.4%
- Expected volatility
- 9.2%
- Plausible drawdown
- −34%
Nominal, long run
Annual standard deviation
What this mix has seen in a severe bear market
Capacity versus tolerance
Two different things. Your allocation is capped by the lower of them.
Your finances, not your nerve, are what caps this. A thin cash buffer, unstable income or expensive debt all mean a market fall could force you to sell. Fix those and this number rises on its own.
- A thin cash buffer is the main constraint — without it, a bad month becomes a forced sale.
What this looks like in a bad year
Why this matters
Risk capacity and risk tolerance are routinely conflated, and that conflation is how people end up selling at the bottom. Capacity is structural: a secure income and a funded buffer mean a 40% drawdown does not force you to sell anything. Tolerance is behavioural: it is whether you will hold through that drawdown voluntarily.
An allocation only works if it clears both, so this tool takes the lower. Losses are weighted roughly twice as heavily as equivalent gains, which is why the drawdown figure above is stated in your own currency rather than as a percentage — the percentage is easy to agree to in the abstract.
The fastest way to raise this number is usually not to talk yourself into more risk. It is to fund your buffer and clear expensive debt, which raises capacity directly.