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Different Risk Levels and What They Mean to You

Risk is a fact of life in an uncertain world. That’s why it’s important to consider the risk levels when investing. As you dive into your risk tolerance, determine what it will mean to your investments. What level of uncertainty or volatility are you willing and able to endure as an investor for the chance to realize a reward over time? It’s not a simple question. But, here’s what you should know.

What Is Risk Tolerance?

Risk tolerance involves exploring how much potential loss you can tolerate and for how long, but it’s not just about you. You also need to understand the volatility you will face in the market as you determine the level of risk you’re willing to tolerate. While any investment incurs some level of risk, you need to find the right balance for your asset mix that suits your preferences while helping to achieve your investment goals.

Socioeconomic factors can influence you. For example, you may watch the news cycle and see reports that seem negative about the market situation. This may cause you to sell your assets at a loss due to a lower tolerance to potential risk. While emotions do come into play with your investments, you should continue to focus on the fact that longer-term investments tend to involve fewer risks. Instead of bailing at the first sign of market volatility, you can hold on to your investments as the market has always trended upwards over time.

Your risk tolerance is individual and personal. Only you know what you are willing and able to tolerate, but it’s also a key part of your investment strategy. As you determine your risk tolerance, you are also making decisions that may impact the achievement of your investment goals and level of returns. If you can accommodate a higher level of risk, you may realize higher rewards. Still, it is best to be realistic about what your own preferences and financial situation can withstand during short-term volatility, and fully understand how market volatility might affect your returns.

As you develop your investment mix, you should be ready to stand by your decisions while allowing yourself the flexibility to reassess your investments at set intervals that make sense for any changes to your situation. Remember, you’re focused on reaching your financial goals, but you must also consider your peace of mind. If your current investment mix keeps you up at night, maybe it’s time to reevaluate.

Types of Risk Levels

Your specific risk tolerance may be individual to your situation, but there are still generalized categories for risk which you can fall under. Here’s a quick breakdown of some general risk levels and what that might involve for your investment mix.


As an aggressive investor, you value maximizing the return on your investment in the long term, but you’re also willing to accept a higher level of volatility along the way. Likely, you’re just not afraid of market fluctuations. In addition, you may be heavily invested in stocks as an aggressive investor, since they tend to be more risky. So, you have the potential to realize more significant levels of return in the long run, but your risk is also higher and short term declines can be steeper. 


As a balanced investor, you focus on reducing your level of risk while tolerating some volatility in the short term. You accept moderate risk with the potential for a long-term return on your investment – this may not be as high as that of an aggressive investor, but you are likely to feel less intense volatility over time. To achieve your goals, you can be invested in a balanced mix of high-risk assets such as stocks and lower risk assets such as bonds and mutual funds, with a time horizon of 6-20 years.


As a conservative investor, you have a low tolerance for risk. You are more comfortable pursuing stable returns, rather than the possibility of high ones, and minimizing the day to day volatility felt in your investments. You tend to be invested in bonds or other less volatile assets to achieve that goal. Typically, many investors become more conservative as they near retirement, as their time horizon for investing becomes shorter and therefore less able to overcome short-term declines.

Factors That Affect Risk Tolerance

As an investor, you will face numerous factors that can affect your risk tolerance. Consider where you are in life, what you want and need to achieve, and how much time you have. If you have the luxury of 20+ years for your portfolio to mature, your risk tolerance tends to be different than if you plan to retire in a few years. Here are a few factors that might affect your risk tolerance.

Personal Comfort Level

How much value can you stand to lose in the short term, compared to your overall net worth? If you lost 20% of your portfolio, how would that make you feel? If that level of loss is just a hiccup or bump in the road, you may be ready for a more balanced or aggressive level of risk. It’s essential to know whether you fully understand what is at stake before approaching riskier investments.


What are your goals, and what will it take to achieve them? Whether your objective is to buy a house, travel, invest in your children’s education, retire comfortably, or start a business, you need to determine your risk tolerance based on that goal.


Your timeline goes hand-in-hand with your goals and other factors. You may be willing to go all-in, but how much time do you realistically have? Based on your timeline, you may have 20+ years for your investments to pay off.


Your investment goals differ depending on your age and level of experience, and so does your ability to tolerate risk. If you are 20 years old, you have more time to benefit from compound interest while overcoming day to day volatility. It’s more likely you’re focusing on retirement if you’re 50+, so you may be a bit more conservative with your investing approach.

Size of Portfolio

If your investment portfolio is extensive and diversified, you’re facing a lower level of risk. But, of course, it’s more challenging to diversify your investments if you stick to individual stocks only. So, you may be forced to decide whether to go all-in with aggressive investing or take a more conservative path. 


Emotions do factor into risk tolerance. If you can take losses in stride, you’ll probably be more comfortable with higher risk tolerance. Unfortunately, the opposite is true as well. High risk is not for every investor. It means there’s a potential for high reward but also significant loss.

Based on these factors, you should know better what level of risk tolerance you’re most comfortable with. If you’re still not sure, that’s OK. SmartWealth can help you work through your investment strategy and help you better understand what your comfort level might be.

How Can SmartWealth Help?

SmartWealth offers a comprehensive questionnaire to help you better understand your risk level. This asks you about your financial situation, investment goals, situation in life, and potential reactions to market situations to fully understand your approach to risk.

Then, we customize your investment plan to help you reach your financial goals within your timeline. You’ll be able to follow this plan for the long term, knowing it fully aligns with your personal needs and preferences.

Ready to invest for your future?