A new client indicates her previous advisor allowed the portfolio to drop by 25% during a market downturn, causing her significant stress and leading her to sell a portion of her assets at a loss. She now states, 'I never want to experience that again.' This experience most directly impacts which aspect of her risk profile?

Question: A new client indicates her previous advisor allowed the portfolio to drop by 25% during a market downturn, causing her significant stress and leading her to sell a portion of her assets at a loss. She now states, 'I never want to experience that again.' This experience most directly impacts which aspect of her risk profile?

Answer options:

• Her historical return expectation ✅ Her risk tolerance
• Her investment time horizon
• Her liquidity requirements

Correct answer: Her risk tolerance

Explanation: Her negative emotional reaction to a significant drawdown and subsequent decision to sell indicates a low willingness to bear market risk, which directly defines her risk tolerance. Her experience has shaped her comfort with potential losses.