What Is Risk Tolerance?

Risk tolerance is the degree of risk that an investor is willing to endure given the 澳洲幸运5官方开奖结果体彩网:volatility in the value of an investment. An important component in 澳洲幸运5官方开奖结果体彩网:investing, risk tolerance often🉐 determines the type 𒁏and amount of investments that an individual chooses.

Greater risk tolerance is often synonymous with investment in stocks, equity funds, and 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs), while lower risk tolerance is often associated with the purchase of bonds, bond funds, and 澳洲幸运5官方开奖结果体彩网:income funds.

Understanding Risk Tolerance

All investments involve some degree of risk and knowing their risk tolerance level helps investors plan their entire 澳洲幸运5官方开奖结果体彩网:portfolio, determining how they inv🐭est. Based on 🍸how much risk they can tolerate, investors are classified as aggressive, moderate, and conservative.

Risk tolerance assessments are available online, including risk-related surveys or questionnaires. An investor may also want to review historical returns for different 澳洲幸运5官方开奖结果体彩网:asset classes to determine the volat𓄧ility of the v🌳arious financial instruments.

One factor that affects risk tolerance includes the ♏time horiz𝓀on for an investor. Having a financial goal with a long time horizon, an investor may have greater returns by carefully investing in higher-risk assets, such as stocks. Conversely, lower-risk cash investments may be appropriate for short-term financial goals.

An investor's future earning capacity, and the presence of other assets such as a home, pension, 澳洲幸运5官方开奖结果体彩网:Social Security, or an inheritance affect risk tolerance. An investor can take greater risk with investable assets when they have other, more stable sources of funds available. Additionally, investors with a larger portfolio may be more tolerant to risk, as the percentage of ꦚloss is much less in a larger portfolio when compared to a smaller portfolio.

Aggressive Risk Tolerance

An aggressive investor, or one with a high-risk tolerance, is willing to risk losing money to get potentially better results. Aggressꦐive investors tend to be market-savvy with an understanding of the volatility of securities and follow strategies for achieving higher than average returns.

Their investments emphasize 澳洲幸运5官方开奖结果体彩网:capital appreciation rather than income or preserving their principal investment. This investor's asset allocation commonly includes stocks and little🐽 or no allocation to bonds or cash.

Moderate Risk Tolerance

Moderate investors want to grow their money without losing too much. Their goal is to weigh opportunities and risks and this investor's approach is sometimes described as a “balanced” strategy.

Commonly, moderate investors develop a portfolio that includes a mixture of stocks and bonds, perhaps as a 50/50 or 60/40 structure.

Conservative Risk Tolerance

Conservative investors are willing to accept little to no volatility in their investment portfolios. Retirees or those close to 澳洲幸运5官方开奖结果体彩网:retirement age are often incl🧔uded in this category as they m🌳ay be unwilling to risk a loss to their principal investment and have a short-term investment strategy.

A conservative investor targets vehicles that are guaranteed and highly liquid. Risk-averse individuals commonly opt for bank 澳洲幸运5官方开奖结果体彩网:certificates of deposit (CDs✤), money markets, or 🧸U.S. Treasuries for income and preservation of capital.