WealthRisk tolerance (definition)
Your risk tolerance is your capacity — and willingness — to endure declines in your portfolio's value without panicking or selling. It's the human factor that should drive your asset allocation.
Two dimensions
- Capacity (objective): your horizon, income, emergency cushion. The longer the horizon, the more volatility you can absorb;
- Willingness (emotional): can you sleep if your portfolio drops 30%? Many overestimate their willingness until the first real decline.
Turning it into investments
Low tolerance → more bonds (e.g. 60/40). High tolerance → more stocks (e.g. 90/10 or 100%). The worst outcome is choosing too aggressive, then panic-selling at the bottom — turning a temporary dip into a permanent loss.
Frequently asked questions
How do I assess my risk tolerance?
Consider your horizon (capacity) and your emotional reaction to a 30% drop (willingness). The lower of the two should guide your allocation.
Capacity vs willingness — which wins?
The more cautious of the two. A long horizon is useless if you panic-sell at the first drop.
Does my tolerance change over time?
Yes. It often falls as retirement nears, which is why the bond share gradually rises.
Try WealthWise for free
100% Canadian tool, free to start. No card required.
Try WealthWise for free →