This article on risk tolerance will be brief, but it is such an important topic that it deserves its own page.
Risk tolerance generally means how able one is to take on risk vs safer assets. Why would someone want to take on more risk? This is because in finance, more risk almost always means more possible reward.
Why is Risk Tolerance Important?
Risk tolerance is one of the most important aspects of an investment strategy because it helps guide asset allocation. In general and in simplest terms, those that are younger have a longer time frame and can better handle larger market swings that occur with riskier investments, but typically have higher returns in the long run. Older folks, on the other hand, generally have a lower risk tolerance as they near retirement.