What is risk tolerance?
All investments involve a degree of risk there's the possibility of loss as well as profit. Before you invest, you need to understand how much risk you feel comfortable with. This is known as your risk tolerance.
Where have you heard about risk tolerance?
Financial advisers will assess your risk tolerance before recommending investments. There are also online questionnaires that do this.
What you need to know about risk tolerance...
Your risk tolerance will be affected by your financial situation and your investment goals, as well as how much time you have to invest. If you are investing for the long-term, you might be willing to accept more risk than you would if you were approaching retirement. But it's also a matter of what you personally feel at ease with.
You should have a realistic understanding of your ability and willingness to absorb large swings in the value of your investments. If you take on too much risk, you may panic and sell at the wrong time.