About Risk Tolerance Risk is the chance you take of making or losing money on your investment. The greater the risk, the more you stand to gain or lose. Each individual investor must determine his own personal risk tolerance.
Risk tolerance is partly psychological and partly financial.
Long-term investors generally prefer to invest more heavily in growth or value stocks than in bonds. Progressively shorter time frames call for less volatile investments, generally equity-income, balanced, bond, and money market funds. Again, discomfort with short-term price fluctuations suggests that you should pursue a more moderate strategy. Sector and international stock funds might be a more interesting and rewarding investment for savvy investors. But younger, inexperienced investors often can afford to be relatively aggressive, both in investment selections and in acquiring knowledge.