Risk tolerance
Certified Financial Planner glossary · Certified Financial Planner
Definition
The psychological willingness to bear volatility; a stable trait distinct from capacity, perception, and need.
Risk tolerance in plain English
Two households with identical net worth can sit through the same market drop and react completely differently. Risk tolerance is the psychological willingness to bear volatility, treated as a relatively stable trait distinct from capacity, perception, and need. Keep those four ideas separate on the exam. A client who panics after a headline is showing perception or temporary emotion; that does not automatically rewrite long-run tolerance or objective capacity.
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