Investing term

What is Risk tolerance?

Your willingness to accept losses in exchange for the chance of higher returns.

Risk tolerance is your emotional willingness to endure losses for the chance of higher returns — how much of a drop you can stomach without panic-selling. It's deeply personal and best assessed honestly, because a portfolio you'll abandon in a crash is worse than a tamer one you'll actually hold. Knowing your true tolerance keeps your plan survivable.

For example

If a 20% paper loss would keep you up at night and tempt you to sell, your risk tolerance is lower than an all-stock portfolio assumes.

Risk tolerance is taught hands-on in Stage 1 — Money, Goals & Your Financial Foundation.

See the lesson →

Related terms

APRAnnual Percentage Rate. The yearly interest cost of a loan, including most fees.CompoundingWhen your returns earn returns of their own, so money grows faster the longer it's invested.Emergency fundCash reserved for unexpected expenses, usually 3–6 months of your usual spending.Employer matchFree money from an employer that matches part of what you contribute to a workplace retirement plan.
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