Risk tolerance is 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 and growth companies and is willing to accept the possibility that the value of his/her portfolio can be volatile in both upward and downward movements . 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.
A less sophisticated test is – Are you losing sleep over your investments? If you are, then in most cases your current investment allocation does not mesh with your risk tolerance.
Another consideration is two spouses may have different tolerances for risk. In this case it is good to know how different their tolerance is so it can be addressed.
We offer a simple risk tolerance tool that is only 7 questions long and takes just minutes to complete. After filling it out we can assess what your tolerance for risk is.