Risk Tolerance

Risk tolerance refers to the degree of variability in investment returns and potential for financial loss that an investor is comfortable accepting in pursuit of higher returns. It is a personal measure determined by factors such as investment goals, time horizon, income, future earning capacity, and psychological disposition toward uncertainty and loss. Investors with high risk tolerance may choose volatile investments (like stocks) for greater long-term growth potential, while those with low risk tolerance prefer stable, lower-risk options (like bonds or cash equivalents). Risk tolerance is critical in shaping portfolio strategy and asset allocation, and can be assessed through self-reflection, questionnaires, and an understanding of personal financial circumstances and goals.