Risk Tolerance

Risk tolerance refers to an investor's ability and willingness to endure the potential for loss in their investment portfolio. It is influenced by factors such as financial goals, time horizon, and personal comfort with market volatility. Investors with high risk tolerance are willing to take on more volatile investments, such as stocks, in pursuit of higher returns, while those with low risk tolerance prefer safer investments, like bonds or savings accounts. Understanding risk tolerance is essential for building a suitable investment strategy.

Example

A young investor with a long time horizon and high risk tolerance might allocate a large portion of their portfolio to stocks, while a retiree with low risk tolerance might prefer bonds or fixed-income securities.