What is risk tolerance in investing?
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In short: How much short-term loss you can accept without selling at the wrong time. Higher risk tolerance suits more shares and fewer bonds; lower tolerance needs more cash and bonds even if long-term returns may be lower.
Content updated:
Risk capacity (financial ability to absorb loss) and risk attitude (emotional comfort) both matter. A young investor with stable income may have high capacity but low attitude — portfolio should reflect the binding constraint.
Volatility is normal. Equities can fall 20%–40% in bad years; recovery historically followed but is not guaranteed.
Diversification and pound-cost averaging reduce timing risk. See index funds vs active funds for building blocks.
Primary source: moneyhelper.org.uk/en/savings/investing
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