Risk tolerance refers to the degree of variability in investment returns that an individual is willing to withstand. It reflects how much risk a person is comfortable taking when investing their money, which can be influenced by factors such as age, financial situation, and investment goals. Understanding one's risk tolerance helps in making informed decisions about asset allocation and investment strategies. Different investors have varying levels of risk tolerance. For example, a younger investor may have a higher risk tolerance because they have more time to recover from potential losses, while a retiree might prefer safer investments to protect their savings. Assessing risk tolerance is crucial for creating a balanced investment portfolio that aligns with an individual's financial objectives and comfort level.