Definition of Risk tolerance:
Capacity to accept or absorb risk.
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.
How to use Risk tolerance in a sentence?
- You need to talk with the others at your business and come up with how much risk tolerance you are willing to take.
- Risk tolerance is a measure of how much of a loss an investor is willing to endure within their portfolio.
- I have a very high risk tolerance ever since I was a kid all because I love jumping around and climbing trees.
- A person with moderate risk tolerance sits in the balance between an aggressive and conservative investor.
- A person's age, investment goals, income, and comfort level all play into determining their risk tolerance.
- 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.
- 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.
- We had a lot of risk tolerance and that is what made us really good, because we took chances and made changes.
Meaning of Risk tolerance & Risk tolerance Definition