Financial risk tolerance is simply a measure of how much of a loss an investor is willing to endure within a portfolio and his or her willingness to accept higher risk in exchange for the possibility of higher returns.
Financial risk tolerance looks at how much market risk—stock volatility, stock market swings, economic or political events, regulatory, or interest rate changes—an investor can (or is willing to) tolerate, considering that all of these factors might impact their portfolio.
Investors generally fall into three different types of risk categories:
- Aggressive Risk investors are those who understand that there may be large losses and gains and are comfortable with making high risk investments.
- Moderate Risk investors are comfortable with some risk and prefer to balance risky with safe investments. They usually have a percentage of loss they are willing to risk.
- Conservative Risk investors prioritize avoiding losses above making gains. They do not invest in anything risky and go for the options they feel are safest.
Generally, an aggressive investor, or someone with higher risk tolerance, is willing to risk more money for the possibility of better returns than a conservative investor, who has lower tolerance. Those younger in age, with a longer potential time in the market, generally may be more aggressive in their level of risk tolerance than someone perhaps near retirement or older.
For most, taking a risk is a necessary part of making any financial investment. An investor’s age, investment goals, income, and comfort level all play into determining their risk tolerance. In addition, life events such as buying a home, paying for college or planning for retirement may affect an investor’s risk tolerance.
A Journey to Personal Financial Success
At Morgan Franklin Fellowship (MFF), we support the concept of financial freedom – by teaching participants how to save by paying themselves first, invest for their future and grow their net worth.
Learning how money works and how to talk about money with others are the first steps towards recognizing an individual’s lifelong financial goals. Our online programs, podcasts, blogs, and book reviews and resources are designed to help you learn the concepts, rules and vocabulary of money, finance and investing.
Becoming an MFF Fellow
Our Standards of Financial Literacy – Learning about money series is engaging, full of interesting information, and easy to navigate. Adapted from the National Standards for Personal Financial Education developed by the Council for Economic Education (CEE), this robust curriculum features six short lessons on such important topics as earning income, understanding the value of saving and using credit. When completed, this program lays the foundation for becoming an MFF Fellow.
Becoming an MFF Fellow is the ticket to access additional MFF programs and opportunities for mentoring, networking, internships and real-world opportunities. Hear from the MFF Fellow themselves on how these opportunities encourage them to continue their journey to personal financial success.
Learn More about Money
Begin the journey towards personal financial independence today. START LEARNING TODAY
