Bogleheads:Featured article/Risk tolerance

Risk is the uncertainty (variation) of an investment's return, which does not distinguish between a loss or a gain. However, investors usually think of risk as the possibility that their investments could lose money.

Risk tolerance is your emotional and psychological ability to endure investment losses during large market declines without selling or undue worry, such as losing sleep. To know whether a portfolio is right for your risk tolerance, you need to be brutally honest with yourself as you try to answer the question, "Will I sell during the next bear market?" (more...)