Risk Tolerance

Risk tolerance

An investor's ability or willingness to accept declines in the prices of investments while waiting for them to increase in value.

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Risk Tolerance

The extent to wish an investor is willing to accept more risk in exchange for the possibility of a higher return. An investor with a high risk tolerance is likely to invest in securities, such as stocks in startup companies, and is willing to accept the possibility that the value of his/her portfolio will decline, at least in the short-term. An investor with a low risk tolerance, on the other hand, tends to invest predominantly in stable stocks and/or highly-graded bonds. One's risk tolerance is subjective and may vary according to age, needs, goals, and even personal dispositions. See also: Eat well, sleep well.

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Risk tolerance. Risk tolerance is the extent to which you as an investor are comfortable with the risk of losing money on an investment. If you're unwilling to take the chance that an investment that might drop in price, you have little or no risk tolerance.

On the other hand, if you're willing to take some risk by making investments that fluctuate in value, you have greater risk tolerance. The probable consequence of limiting investment risk is that you are vulnerable to inflation risk, or loss of buying power.