đź’ˇ Risk tolerance is a widely misunderstood concept. In the context of investment planning, risk tolerance refers to a person’s willingness to engage in financial behavior in which the outcome of the behavior is both unknown and potentially negative.Risk tolerance is the maximum level of uncertainty you are willing to accept when making an investment decision that entails the possibility of loss.Various factors, including age, financial situation, and investment objectives, may influence risk tolerance. For example, younger investors may be more comfortable with higher levels of risk as they have more time to ride out market fluctuations. On the other hand, investors approaching retirement may be more risk-averse, as they may need to rely on their investments to generate income soon.It’s important to understand your risk tolerance before investing, as taking on too much risk can lead to significant losses, while taking on too little risk may not provide the growth potential you seek.