Risk Tolerance

Dictionary Says

Definition of 'Risk Tolerance'

The degree of variability in investment returns that an individual is willing to withstand. Risk tolerance is an important component in investing. An individual should have a realistic understanding of his or her ability and willingness to stomach large swings in the value of his or her investments. Investors who take on too much risk may panic and sell at the wrong time.
Investopedia Says

Investopedia explains 'Risk Tolerance'

Investors can assess their degree of risk tolerance by taking one of a number of different risk tolerance questionnaires. In addition, it can be useful to review worst-case returns for different asset classes historically in order to get an idea of how much money one would feel comfortable losing if his or her investments have a bad year or bad series of years. Other factors affecting risk tolerance are the time horizon that one has to invest, future earning capacity, and the presence of other assets such as a home, pension, social security or inheritance. In general, one can take greater risk with investable assets when there are other, more stable sources of funds available.

Articles Of Interest

  1. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  2. Get Personal With Your Portfolio

    Use personal experiences and milestones to help determine your stock picks and investments.
  3. 5 Common Mistakes Young Investors Make

    Starting to invest can be a scary process. Luckily, steering clear of common errors is half the battle.
  4. Measuring And Managing Investment Risk

    Risk is inseparable from return. Learn more about these measures and how to balance them.
  5. Why Investments That "Feel" Safe May Not Be

    Investors tend to be adventurous in situations where they feel protected, but risk compensation theory suggests this may backfire.
  6. What Is Your Risk Tolerance?

    Forget the cliches and uncover how much volatility you can really stand.
  7. Redefining Investor Risk

    Changing the way you think about time and risk can change the way you invest.
  8. Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving it.
  9. Determining Risk And The Risk Pyramid

    Many investors do not understand how to determine the level of risk their individual portfolios should bear.
  10. The Leverage Cliff: Watch Your Step

    Understanding your risk tolerance level can save you a lot of grief and financial instability in the future.
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