Risk tolerance is an individual’s willingness and ability to tolerate fluctuations in the value of an investment portfolio. It is determined by factors such as one’s financial goals, investment time horizon, income, and personal attitudes toward risk.

Investors with a high-risk tolerance are willing to accept greater volatility in their portfolio, while those with a low-risk tolerance may prefer more conservative investments that offer less potential for gain, but also less risk of loss. It is important to determine one’s risk tolerance before investing, as it can help inform investment decisions and avoid taking on undue risk.