Portfolio and Allocation Terms
Risk Tolerance
How much uncertainty or loss an investor is emotionally and practically able to handle.
Also called: tolerance for risk
What it means
Risk tolerance is the amount of market movement, temporary loss, or uncertainty an investor can realistically accept without abandoning the plan. It is partly emotional and partly practical, because someone may want higher growth but still need stability.
Why it matters
A strategy that looks good on paper can still fail if the investor cannot stay with it during stress.