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Key takeaways
- Risk tolerance is two things — willingness and capacity.
- Capacity is largely objective; willingness is largely psychological.
- Real risk tolerance only reveals itself during market drawdowns.
- Risk tolerance changes over the life cycle and after major events.
How Olomon thinks about this
Olomon makes risk capacity visible: how much liquidity, how much income, how much fixed obligations, how much concentrated exposure. That gives advisors a real foundation for assessing how much volatility a household can actually absorb — not just how much they say they can.
In-depth definition
Frequently asked questions
Generally yes — risk capacity tends to fall as time horizon shortens, particularly approaching and during retirement. Personal willingness to accept risk also evolves with experience and life events.
Sources
Primary, authoritative references.
- 1
Financial Industry Regulatory Authority (FINRA)
Diversification & Risk — FINRACited for: Investor education on risk
- 2
Investor.gov (SEC Office of Investor Education and Advocacy)
Assessing Your Risk Tolerance — Investor.govCited for: Authoritative guidance
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Cite this page
APAOlomon Editorial Team. (2026). Risk tolerance. Olomon Financial Glossary. https://olomon.com/financial-glossary/risk-tolerance