This is general education, not personal financial advice.
Two people with the same money can be right to invest very differently. The difference is their risk tolerance and capacity.
Direct answer
Risk tolerance is how much ups and downs in your investments you can accept without panicking. Risk capacity is how much loss you can afford financially. Your risk profile combines both with your time horizon. Knowing yours helps you avoid selling in a panic or taking on more than you can afford.
Three ideas
| Idea | Meaning |
|---|---|
| Risk tolerance | Emotional: how you'd feel if an investment fell 20% |
| Risk capacity | Financial: could you afford the loss? |
| Time horizon | How long until you need the money |
Questions to ask yourself
- If my investments fell sharply, would I sell or wait?
- When will I need this money?
- Do I have an emergency fund separate from investments? See emergency fund for beginners.
- Would a loss change my daily life?
- Do I have debts that cost more than I might earn?
Why it changes
Age, income, family, experience and market events all shift it. Revisit it every year or after big life changes.
Common mistakes
- Taking more risk because friends are
- Selling at the bottom out of fear
- Taking risk with money you'll need soon
- Confusing luck in a rising market with skill
Next steps
Learn the basics in what is investment risk and see low-risk investments for beginners.
Where Teyro fits
Teyro's How to Understand Investment Risk course helps you think clearly about risk, time horizon and spreading money out. It is free to start.
The bottom line
Match risk to your feelings, your finances and your timeline.
