Risk tolerance is the amount of risk you’re willing to take with your investments.
As a general rule, younger investors have more time to keep their money invested and can accept more risk than older investors who will need to access their money sooner, such as in a few months or years.
Market volatility is a serious risk factor for short-term investors because the value of your investments may be down when it’s time to withdraw your funds. But, for long-term investors, the risk is lessened because you can typically ride out the lows of the market. Therefore, the longer you have to invest, the more risk you may be comfortable with.
However, time in the market is only one consideration when you think about your risk tolerance. Your own “comfort level” is also an important consideration. If your investments are in asset classes that tend to fluctuate, you must be willing to accept that the value of your investments may drop considerably from time to time. Alternatively, if you are invested very conservatively, you must consider the chance that your returns will not keep up with inflation in the years ahead.
You can determine your personal level of risk tolerance by taking the Risk Advisor assessment quiz in your Full Picture report builder. Log in through your myMERS account and under the “Action Plan” tab, click the link to open the Risk Advisor tool.