Risk tolerance is an individual’s willingness or ability to take on risk when making investment or financial decisions. It refers to the degree of uncertainty that an individual is willing to accept in order to achieve their financial goals.
Some people have a high tolerance for risk and are willing to take chances in order to potentially earn higher returns on their investments, while others have a low tolerance for risk and prefer investments with a lower potential for volatility, even if that means accepting lower returns.
Factors that can influence an individual’s risk tolerance include their age, income, financial goals, investment time horizon, and personal beliefs about risk and reward. It’s important for individuals to understand their risk tolerance in order to make investment decisions that are appropriate for their unique circumstances and goals.