What Is Risk Tolerance?

Risk tolerance refers to how much risk you are willing to take

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Higher risk

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Typically, higher risk comes with the chance of much higher rewards, while lower risk options typically have less pay-off but are less volatile, and safer.

Lower risk

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If you have quite a low-risk tolerance, perhaps because you are older and wouldn’t want to lose your money, then you might invest 90% of your money into less risky items, while leaving 10% for a few more risky options.

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Investing always comes with risks

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How would you react if you saw a large market drop? Could you ride it out? If you would lose sleep over your investments, then a less risky approach might be a better fit for you.

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It’s all about finding the right blend of risk for your goals and comfort zone.

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Always do your own research and use the tools available to you. For example, we use a chilli rating system to indicate risk rating on the Exchange-Traded Funds available on NuWealth.

Regardless of if an investment is higher risk or lower risk, your capital is at risk when you invest.