Anyone who has spent even a little time investing has likely heard the term “risk tolerance.” An industry definition says that risk tolerance is the level of risk or uncertainty that an individual or organization is willing to accept in order to achieve their objectives. It reflects both emotional comfort with potential losses and the financial capacity to endure them.
But in everyday life, it simply means your comfort level with the possibility of losing money if you invest in that stock or bond. Risk tolerance can vary by your age, how much time you have until retirement, how critical the income stream is to paying your most immediate bills and even your ability to monitor your personal anxiety.
So how do you determine the right balance? It is not a cut-and-dried exercise. Here are a few key factors to consider when deciding your risk tolerance and the right mix of investments for your portfolio.
This post originally appeared at U.S. News & World Report.