An investor’s willingness to accept high risk in the hopes the investments will increase in value. A risk-averse investor has investments whose values are relatively stable—they will neither increase greatly nor decrease greatly. An investor with a high risk tolerance has investments whose value might increase dramatically or fall dramatically. An individual’s risk tolerance varies by personality and other factors, such as life stage. A retired person is typically less willing to pursue high-risk investments than a younger person, for example.
Webster's New World Finance
The acceptable level of variation relative to the achievement of objectives. In setting specific risk tolerances, management considers the relative importance of related objectives and aligns risk tolerances with its risk appetite. (COSO)
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