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Risk tolerance matters for investors

Reported · Written up by our desk · Fund Industry

ETF Trends discusses the role of personal risk tolerance in building an investment strategy, arguing that investors should assess their own comfort with market ups and downs before acting.

The outlet frames risk tolerance as a factor that can support more rational decision making, contrasting emotion driven behavior with an intentional approach aligned to each investor.

It describes an extreme low end of the spectrum focused on protecting capital, citing examples such as savings accounts, CDs, and even keeping cash at home, while noting that returns depend on the fed funds rate set by the Federal Reserve.

At the other end, ETF Trends warns that high risk taking can be driven by greed and lead investors to chase overly speculative opportunities, and it says the solution is to pair a diversified mix of investments across the risk spectrum with a strategy that matches an individual’s tolerance.

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