what is risk tolerance 
risk tolerance is the degree of risk that an investor is willing to endure given the volatility in the value of an investment an important component in investing risk tolerance often determines the type and amount of investments that an individual chooses greater risk tolerance is often synonymous with investment in stocks equity funds and exchange traded funds etfs while lower risk tolerance is often associated with the purchase of bonds bond funds and income funds understanding risk toleranceall investments involve some degree of risk and knowing their risk tolerance level helps investors plan their entire portfolio determining how they invest based on how much risk they can tolerate investors are classified as aggressive moderate and conservative risk tolerance assessments are available online including risk related surveys or questionnaires an investor may also want to review historical returns for different asset classes to determine the volatility of the various financial instruments one factor that affects risk tolerance includes the time horizon for an investor having a financial goal with a long time horizon an investor may have greater returns by carefully investing in higher risk assets such as stocks conversely lower risk cash investments may be appropriate for short term financial goals 1an investor s future earning capacity and the presence of other assets such as a home pension social security or an inheritance affect risk tolerance an investor can take greater risk with investable assets when they have other more stable sources of funds available additionally investors with a larger portfolio may be more tolerant to risk as the percentage of loss is much less in a larger portfolio when compared to a smaller portfolio order your copy of investopedia s what to do with 10 000 magazine for more wealth building advice aggressive risk tolerancean aggressive investor or one with a high risk tolerance is willing to risk losing money to get potentially better results 1 aggressive investors tend to be market savvy with an understanding of the volatility of securities and follow strategies for achieving higher than average returns their investments emphasize capital appreciation rather than income or preserving their principal investment this investor s asset allocation commonly includes stocks and little or no allocation to bonds or cash moderate risk tolerancemoderate investors want to grow their money without losing too much their goal is to weigh opportunities and risks and this investor s approach is sometimes described as a balanced strategy commonly moderate investors develop a portfolio that includes a mixture of stocks and bonds perhaps as a 50 50 or 60 40 structure 2conservative risk toleranceconservative investors are willing to accept little to no volatility in their investment portfolios retirees or those close to retirement age are often included in this category as they may be unwilling to risk a loss to their principal investment and have a short term investment strategy a conservative investor targets vehicles that are guaranteed and highly liquid risk averse individuals commonly opt for bank certificates of deposit cds money markets or u s treasuries for income and preservation of capital 