Risk Tolerance is a phrase that gets thrown around a lot in the typical financial world. Your risk tolerance is defined as the degree of variability in investment returns that you are willing to withstand.
But this really doesn’t specify the amount of money you are willing to risk in order to possibly make a certain amount of money. In other words, how much money are you going to gamble with?
Of course, just because you gamble with more and more money, that doesn’t mean you will make more, or even any, money in return.
Sadly, it seems that many “risk tolerance” measures are just a new-fangled way of throwing your money away. Here’s what you want to know instead: What is your Loss Aversion? Listen now to find out.
Resources: Podcast Interview with Dr. Paul Cleveland