Risk tolerance


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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 ?
On average, respondents assigned a probability of living about 10 more years at 0.36, and most individuals fell into the highest (59 percent, the omitted reference group) or lowest (30 percent) risk tolerance categories.
This has led to a further assumption that most people's risk tolerance is lower than their risk capacity (Gitman & Joehnk, 2005).
Finally, another very important variable to consider when determining your risk tolerance is your investment horizon.
The trend towards market prices and other related data and information on monetary growth and Gross Domestic Product (GDP) are the main reasons that influence stock prices and determine constant behavior, high risk tolerance and market anomalies.
Risk tolerance was hypothesized to have an effect on enrollment decisions.
The Finworx questionnaire generates a report with details on a client's risk tolerance and biases plus the identification of an investor persona, which advisors can then use to design portfolios and segment clients for communications and marketing purposes.
When those reasons change (for example retirement) and you move from the wealth accumulation phase to the wealth preservation stage of your life, your portfolio will go through a reallocation to align with your new goals and risk tolerance. Rebalancing will then continue following the new allocation.
The most simple of techniques of 'risk tolerance' is that of legendary living investing great Peter Lynch, who became popular through his book 'One Up on Wall Street' published by Fortune Magazine.
As depicted in figure 1, we assessed resolve using a simple model comprised of three components: stakes, credible capabilities, and risk tolerance. The stakes represent the strategic objectives and national interests of an actor, either challenger or defender, in a crisis.
The third objection is the use of the risk tolerance questionnaire."
Determining your risk tolerance helps inform how you should diversify your investment portfolio between stocks, bond and cash.
If investments are part of your goals, you will need to be realistic about your risk tolerance. Although your financial adviser should be able to describe the level of risk with each investment portfolio, this person doesn't know you.