Risk Tolerance
Risk tolerance is how much short-term loss and volatility you can handle without abandoning your plan.
Why this matters
A strategy only works if you can stick with it during rough markets.
Simple example
If a 20% drop keeps you up at night, a lower-stock allocation may be more realistic for you.
Common mistakes
- Taking more risk than you can emotionally handle.
- Confusing risk tolerance with risk capacity.
- Measuring tolerance only in bull markets.