Why is Risk Tolerance important?
Essentially, risk tolerance is an individual’s ability to emotionally withstand an investments decline without reacting in panic. Unfortunately, as simple as this sounds, most investors have never truly determined their tolerance for risk and therefore their portfolio level of risk is not properly aligned with their emotional tolerance for risk. Tragically this ultimately results in unnecessary stress, anxiety and, worst of all, panic trading during temporary market declines locking in permanent investment losses.
