What are the differences between risk tolerance and risk appetite in investing?

[Suba]

Every investment instrument carries a risk, so as investors, we must always learn and understand risk. In the world of investing, we recognize two important concepts related to risk: risk tolerance and risk appetite.

Many people, especially novice investors, often assume these two terms, risk tolerance and risk appetite, are the same or similar. So, do you need clarification and information?

 

[Augusta]

Risk tolerance is the level of risk that an organization can accept per individual risk, whereas risk appetite is the total risk that the organization can bear in a given risk profile,

 

[kit_hung]

If you don’t know the risks, the rewards can throw you off. In investing, every instrument has its own risks, and it’s important to understand two key concepts: risk tolerance and risk appetite. Many people view them as the same thing, but they are different.

Risk tolerance is the level of risk you can tolerate without being emotionally or financially affected. Risk appetite is the level of risk you are willing to take in order to achieve a high return. An investor can have a high appetite but a low tolerance.

Self-awareness is the first step. Knowing your limits, you can choose the right investments for you. Don’t chase profits without understanding the risks. Financial education builds true freedom.