Personal Finance

Risk Tolerance

Definition

What is Risk Tolerance?

An investor's psychological willingness to accept uncertainty and losses.

Example in practice

An investor who panics at a 10% decline has low risk tolerance.

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Money set aside rather than spent, often for emergencies or future goals.

Liquid savings reserved for unexpected expenses or income disruption.

Total assets minus total liabilities.

Annual portfolio withdrawals divided by the portfolio's starting or current value.

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