# What is risk tolerance in investing?

> Quick answer · Last updated 4 July 2026

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## In short

How much short-term loss you can accept without selling at the wrong time. Higher risk tolerance suits more shares and fewer bonds; lower tolerance needs more cash and bonds even if long-term returns may be lower.

Risk capacity (financial ability to absorb loss) and risk attitude (emotional comfort) both matter. A young investor with stable income may have high capacity but low attitude — portfolio should reflect the binding constraint.

Volatility is normal. Equities can fall 20%–40% in bad years; recovery historically followed but is not guaranteed.

Diversification and pound-cost averaging reduce timing risk. See index funds vs active funds for building blocks.

## Related

- [Index funds vs active funds](https://moneyguide.org.uk/investing/index-funds-vs-active-funds/)
- [Pound-cost averaging](https://moneyguide.org.uk/investing/pound-cost-averaging-explained/)
- [Stocks & Shares ISA basics](https://moneyguide.org.uk/investing/stocks-and-shares-isa-basics/)

## Primary source

moneyhelper.org.uk/en/savings/investing

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Independent UK money guidance from [Money Guide](https://moneyguide.org.uk). Information only — not regulated financial advice.