Risk tolerance


Also found in: Dictionary, Medical, Acronyms, Encyclopedia.

Risk tolerance

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

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.

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.

References in periodicals archive ?
Fifty-seven percent of investors described themselves as moderate in terms of risk tolerance, while 20% each said they were conservative or aggressive.
Cognitive risk tolerance is defined as an individual's ability to formulate and express one's ideas despite potential opposition, ridicule, or negative assessment in regard to reputation, integrity and honor (Charyton, 2005; Charyton, 2008).
The pattern among the bars in Figure 1 is quite clear: risk tolerance differs across the three population segments.
Previously discussed literature has established that financial risk tolerance is positively associated with knowledge of personal finance.
A more direct test of risk tolerance as a possible cause for the gender difference in wages was conducted by Dohmen and Falk (2006), who found that risk-averse workers preferred fixed payments (safe payoff), whereas risk-tolerant workers preferred variable pay (uncertain payoff).
Researchers have also made inferences about women's risk tolerance based on observed wealth accumulation and investment choices.
Risk tolerance can influence the order in which the client selects options at this stage.
There are many types of risk, but with respect to an investor's risk tolerance level, there are three basic types to consider:
Examining risk-taking attitudes and behavior among family business owners will increase the understanding of risk tolerance in general and add to the literature on this topic.
Your risk tolerance depends on many things, including:
Douglas Johnson, managing director at Merrill Lynch, looks at how to assess your investment risk tolerance.
The tool kit also helps you determine your ideal asset allocaion by walking you through a quiz that gauges your risk tolerance and time horizon.