Risk Tolerance

When it comes to investing, understanding your risk tolerance is crucial. It determines how much market volatility you can handle without anxiety.​

Risk tolerance refers to your ability and willingness to endure constant changes in the value of your investments. It's influenced by factors like your financial goals, investment timeline, and personal comfort with uncertainty.​

Knowing your risk tolerance helps you choose investments that align with your financial objectives and emotional comfort. Investing beyond your risk tolerance can lead to stress and impulsive decisions, while being too conservative might result in lower returns that don't meet your long-term goals.​

For example, if you have a low risk tolerance, you may put more money into a savings account or a bond; if you have a high risk tolerance, you may put your money into an individual stock

When analyzing your risk tolerance consider three things: investment horizon (longer timelines can typically endure more risk), financial goals (your objectives influence how much risk you can take), and personal comfort (your emotional response to market fluctuations plays a significant role)

For more financial literacy tips and any questions, follow the Dollars to Scholars team!