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 a measure of how much of a loss an investor is willing to endure within their portfolio.
It looks at how much market risk—stock volatility, stock market swings, economic or political events, regulatory, or interest rate changes—an investor can tolerate, considering that all of these factors might cause their portfolio to slide.
A person's age, investment goals, income, and comfort level all play into determining their risk tolerance.
An aggressive investor, or someone with higher risk tolerance, is willing to risk more money for the possibility of better returns than a conservative investor, who has lower tolerance.
A person with moderate risk tolerance sits in the balance between an aggressive and conservative investor.
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