Risk Tolerance Definition

Your risk tolerance is a general summary for how much financial risk you are willing to take with your investments. If you have no risk tolerance you will not take risks and will accept a low return on investment. For example, you might have your money invested in the money market. If you have high risk tolerance you will take many risks, hoping to enjoy a high return on investment.

For example, you might have most of your money invested in junk bonds. Most financial advisors suggest that risk tolerance should be high for younger workers and gradually decrease as workers approach retirement. This is because younger workers have a long period of time during which to invest and ride out market fluctuations whereas retired individuals need their savings to life.