What's Your Risk Tolerance?

One of the essential steps in developing an investment plan is to understand your risk tolerance as an investor.

Risk tolerance is the degree to which you’re willing to make risky investments. In other words, risk tolerance is how much of a loss you can tolerate taking within your investment portfolio.

For example, try asking yourself questions like:

• In general, would you call yourself a risk taker or risk avoider?
• How comfortable do you feel about investing in stocks at the moment?
• Are you more comfortable with stable investments, or are you looking for potentially higher investment returns?

Remember: your risk tolerance relates, above all, to your mental and emotional ability to take on risk and handle losses on your quest to achieve your goals. It largely depends on your beliefs, your personality and your investment experience.

The next question to answer would be, is your risk tolerance in line with your actual financial ability to withstand the loss? The answer to this question will have to do with your risk capacity.

Tap Next to read more about assessing your capacity for risk.