What is Your Risk Tolerance?

What does risk tolerance really mean?

Here’s an example of risk tolerance.

You’re a contestant on a popular game show and you won the last round and now must choose between one of three prize options to continue. You’re given 15 seconds to decide. Which would you choose?

1. $2,500 cash
2. 50% chance to win $10,000
3. 25% chance to win $25,000

Your answer to this question reveals important insights into your psyche about risk. Recognizing your risk tolerance will help you make appropriate investment decisions in a bull or bear market when emotions are high. Knowing your risk tolerance is a requirement for knowing when to sell a losing position.