On a trip to Greece last fall, the winds were howling and the seas were especially rough - so rough that the ferries were not moving between Athens and the Greek island where my husband and I had been staying. When we finally were able to board a boat to take us back to Athens, our ship, not small, was tossed to and fro on the high seas. The boat had a concession stand with beer, wine, and light snacks, but no one would be eating or drinking on this journey. Instead, people were lurching down the aisles, running for the WC, green around the gills.

I looked over at my husband, normally a hardy soul in almost any environment. He was holding his own but sweating profusely. “Aren’t you hot? So incredibly hot?” he kept asking. But the truth was, I wasn’t hot. In fact, I felt absolutely nothing; I may as well have been on land. I read my book, watched with alarm as my fellow passengers periodically jumped up from their seats to sprint to the loo, and looked out the window to admire enormous whitecaps on the deep blue sea. I even made dinner reservations for us in Athens that night. I felt sympathy for what the other travellers were going through, but I couldn’t quite relate.

I’ll confess that I have a similar reaction to volatility in the market. Just as I sat placidly while my fellow sailors were getting seasick in Greece, I know intellectually that many investors get nervous during times of market trouble. But I just don’t feel it myself. I’ve written articles, appeared in videos, and interviewed behavioural finance experts about how market volatility can prompt people to make changes that ultimately hurt their results. I watched the fund flows during the financial crisis, when investors dumped stocks in favour of bonds, managing to catch most of stocks’ downside but little of the recovery. But do I ever feel nervous myself? Not so much. Am I ever tempted to sell in response to market tumult? Never.

Are you experienced?

My guess is that’s probably true of a lot of people who work in investing. Watching the markets, they know that stocks are more volatile than bonds or cash, but stocks also tend to return more over longer periods of time. Putting up with the periodic downdrafts is the price you pay for the possibility of pocketing a potentially higher return. I’ve now been an investor through three major market drops. Each time, the market has picked up, dusted itself off, and moved higher than it was before the trouble started. With each successive market swoon, I’ve been more inclined to invest in stocks during the turbulence, not less.

Clearly, experience matters in relation to risk tolerance: The more adverse market situations that you go through, and recover from, the more comfortable you tend to be with them. But I think personal experience matters, too. Did the bad financial event happen to occur at a particularly bad time for you personally? Did it actually affect your lifestyle, forcing you to make changes that you would have preferred not to make? If so, it’s a good bet you fear a recurrence of that event and will take steps to avoid a repeat.

When I stop to think about it, my blasé attitude toward market volatility and risk likely owes to the fact I’ve never encountered my favourite definition of risk, what financial guru Bill Bernstein calls “bad losses during bad times.” Even though some of these market drops have coincided with periods of higher unemployment for the economy as a whole, my husband and I have hung onto our jobs. We’re not retired, so we didn’t need to draw upon our portfolio. We’ve never had to think about the “least bad” thing to sell or which account to tap in such an environment. The fact that our losses never got personal made them easier to shrug off.

Will the next big, sustained market downdraft feel differently for us as we get closer to retirement? Probably. As someone who spends so much time focusing on retirement planning, I can’t help but translate our retirement balance into sustainable cash flows. Watching our portfolio drop 40 per cent or 50 per cent seems like something we’ll be able to ride out, even if it happens early in our retirement years. But I suspect that those kinds of losses are going to feel differently to us today than they did in 2007-09. It could affect how much we want to spend from our portfolio, and it could make us feel more vulnerable because we’re pulling from our accounts rather than adding to them. Volatility could become personal for us.

When risk hits home

As I examine my thoughts about risk tolerance, I realise that I’m not universally Spock-like with respect to financial risk. I’m more risk-averse in areas where I have had personal experience - where the bad financial events have coincided with my my personal situation.

Long-term care is the best example. The whole topic strikes a deep sense of dread in my heart, and it’s also an issue that I have some personal familiarity with. A dear friend’s mother spent more than 10 years in a long-term care facility after being diagnosed with dementia in her early 70s. She exhausted all of her assets, and my friend and her husband had to dip into their own coffers so she could remain in the same place for her final years. Another friend’s sister was diagnosed with early-onset Alzheimer’s in her 50s. Having spent all of her money, not a lot to begin with, she’s living out what will likely be her last days in state-provided care.

My mum and dad had a better experience with long-term care: They didn’t need care until later in life; though they didn’t have insurance, they could afford to pay out of pocket; and they received care in their home, in line with their wishes. But I know for a fact that they would have preferred not to spend that kind of money on care later in lives, and the whole experience was no picnic - for them or for us. Writing checks from their accounts to cover various caregiving arrangements, not all of which I loved, was unavoidable. But it felt awful.

Is it any wonder that I obsess over how to manage long-term care risk in my own plan? In my mind, suboptimal or even bad financial outcomes are swirling around with deeply sad times. That explains why, in contrast with stock-market volatility, which I can readily shrug off, long-term care is a risk that I’d happily insure against, even if the numbers might say my husband and I don’t need to. I have had experience with this risk, and it wasn’t pleasant.

As you take stock of the risks that worry you most about your own financial plan, take a moment to consider whether your worries are influenced by your own experiences - either yours personally, or those of close family members or loved ones. We’re all products of our experiences, and the risks that are top of mind for us are likely connected to those experiences, too.

But here’s where things get difficult: figuring out whether risk aversion borne out of your personal experience is leading to suboptimal behaviors and should be corrected. You’ll also want to think through the opposite situation - if you’re extremely risk-tolerant about something because you’ve never had personal experience with it, could it be time to update your mindset, factoring in your current situation? I can’t pretend to have all the answers about how to unpack these issues, but they merit careful consideration. This is also an area where a good-quality financial adviser can help provide an objective opinion and may also be able to provide ideas that balance your personal experience and risk preferences with what makes sense from a financial standpoint.