What is 'Risk Tolerance'?

Risk tolerance is the degree of variability in investment returns that an individual is willing to stand. It is an important component in investing. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

Term of the Day | Words to Know Risk Tolerance Risk tolerance is the degree of variability in investment returns that an investor is willing to withstand in their financial planning. Risk tolerance is an important component in investing. You should have a realistic understanding of your ability and willingness to stomach large swings in the value of your investments; if you take on too much risk, you might panic and sell at the wrong time. Risk tolerance is often associated with age, although that is not the only determining factor. However, in a general sense, people who are younger and have a longer time horizon are often able to and are encouraged to take on greater risk than people older with a shorter-term horizon. Greater risk tolerance is often synonymous with equities and equity funds and ETFs, while lower risk tolerance is often associated with bonds, bond funds, and ETFs. But age itself shouldn't determine a switch in asset classes. Those with a higher net worth and more disposable income can also typically afford to take greater risks with their investments. Read More » Related to "Risk Tolerance" Determining Risk and the Risk Pyramid Many investors do not understand how to determine the risk level their individual portfolios should bear. Read More » Risk Tolerance and Your Personal Portfolio To best manage your investment portfolio over the years, you need to determine your risk tolerance. How much risk you are willing to take? Read More » SPONSORED BY FIDELITY INVESTMENTS When Others Step Back, Fidelity Steps Up Attracting the next generation of talented associates is a top priority for the Fidelity leadership team. Here's what they're doing to navigate the current crisis. Learn More » Four Steps to Building a Profitable Portfolio This is a step-by-step approach to determining, achieving and maintaining optimal asset allocation. Read More » Related Definitions Variability Variability is the extent to which data points in a statistical distribution or data set diverge from the average, or mean, value as well as the extent to which these data points differ from each other. Read More » Swing A swing can either refer to a type of trading strategy or a fluctuation in the value of an asset, liability, or account. Read More » Asset Class An asset class is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Read More » Time Horizon Time horizon is the length of time over which an investment is made or held before it is liquidated. Read More » CONNECT WITH INVESTOPEDIA Email sent to: mondemand.forex@blogger.com To update your newsletter preferences or unsubscribe, click here. 114 West 41st St, floor 8 New York NY 10036 © 2020, Investopedia, LLC, All Rights Reserved | Privacy Policy