Risk Tolerance
How much risk a person or an institution is willing and able to carry rather than transfer to an insurer, avoid, or reduce.
Every provider of capital demands a higher expected return as risk climbs, which is why a cautious bank asked for a co-signer while an investor accepting real risk asked for a quarter of the business. The same judgment decides how large a deductible a household will accept and how much market risk a long-term investment plan can carry.
Often Confused With
- Time Horizon
- Risk tolerance is how much loss a person can stand; time horizon is how long the money can be left alone.
Taught In
See Also
3.4.B.6 · 3.5.C.7 · 5.2.C.1 · 5.2.C.3 · 5.3.C.3