Investing Basics

What Is Risk Tolerance?

Risk tolerance is the degree of variability in investment returns, including potential losses, that a person is willing and able to accept. It reflects both emotional comfort with market ups and downs and financial capacity to absorb losses, and it is commonly assessed with questionnaires used in financial planning.

Tolerance vs. Capacity

Risk tolerance is about willingness; risk capacity is about financial ability, such as time horizon, income stability, and other resources.

How It Is Assessed

Questionnaires typically ask about time horizon, investment experience, how the person would react to a given decline in value, and how much of their savings they could leave untouched. The result is a profile, not a precise number.

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Last updated: September 27, 2026. This definition is for general educational purposes only. It is not financial, investment, tax, legal, or medical advice, and it does not recommend any product or course of action. For decisions about your own situation, consult a qualified professional.