What is Risk Tolerance?

Every investor must understand the question: “What is risk tolerance?” If you plan to invest in real estate or other assets such as stocks and bonds, you must understand the level of risk involved. Of course, all investments carry some degree of risk. But can you handle and endure the risks should they happen? That’s where risk tolerance comes in.

Risk tolerance is the amount of risk an investor is willing to take or endure when the value of their investments fluctuates. The level of risk can influence the amount of investment you choose, whether in the real estate or stock market. So, before making an investment decision, you must assess your risk tolerance.

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Risk Tolerance in Investment

The level of risk tolerance in an investment can influence your investment decision positively or negatively. That’s why there are higher-risk and lower-risk investments. Assets with greater risk include stocks, equity funds, and ETFs (exchange-traded funds), while those with lower risk tolerance are bonds and income funds.

There are three categories of investors based on the types of risk they can handle.

  • Aggressive Investors: Aggressive risk investors understand the investment market and can take huge risks. They are known to be wealthy and experienced.
  • Conservative Investors: They take the least risk in the market by avoiding risky investments. Instead, they go for investment options they feel are the safest.
  • Moderate Risk Investors: These risk investors are less risk-tolerant than aggressive risk investors and often set a percentage of losses they can take.

What is it in Real Estate Terms?

Like any other investment, real estate investments also carry a particular risk. Some of the risks a real estate investor may experience include market, asset-level, liquidity, and credit risks. So, risk tolerance in real estate is the ability of real estate investors to consider such risks whenever they occur. Notably, real estate is a low-risk investment, so if you are concerned about wasting your money, rest assured that real estate is one of the better investments you can make. 

Your Risk Tolerance Depends on You

You must assess your tolerance to choose investment options as an investor. Some factors influencing your risk tolerance include financial goals, time horizons, portfolio size, comfort level, and age. So, proper financial planning and asset allocations are essential once you’ve assessed the risks and made an investment decision.

Let Bran Help You

Now that you understand the question, “What is risk tolerance?” you can evaluate your investment options and settle on one that suits your financial goals. For example, if you decide to invest in real estate, you must understand the risks involved in the sector for you to succeed. Thankfully, Bran Real Estate Services is here to help you find success in multifamily real estate investing.

Contact us today to discuss your real estate investment with our experts in real estate.