One of the most overlooked (but critical) parts of investing is understanding your risk tolerance. It affects every decision you make—from what assets to buy to how you respond when markets crash.

What is risk tolerance?
It’s your ability and willingness to endure market volatility and potential losses in pursuit of long-term gain. It’s both emotional (how you feel about risk) and financial (how much you can afford to lose).

There are three primary levels:

1. Conservative – Prioritize capital preservation. Favor bonds, money market funds, dividend stocks. Lower returns, but more peace of mind.
2. Moderate – Balanced approach with a mix of stocks, bonds, and alternatives. Accept some volatility for higher potential gains.
3. Aggressive – Seek growth and accept short-term losses. Favor stocks, emerging markets, or alternative assets like crypto.

To assess your risk tolerance:

• Reflect on your reaction during past market dips (if applicable).
• Consider your investment horizon. The longer you can wait, the more risk you can typically handle.
• Think about your financial safety net. Do you have savings or emergency funds outside of your portfolio?

It’s also helpful to take a risk profile questionnaire—many brokers and robo-advisors include this as part of the onboarding process.

Matching your portfolio to your risk tolerance helps prevent emotional decisions. When your investments align with your comfort level, you’re more likely to stay consistent—and win long-term.