5 Examples of Risk Tolerance
John Spacey, updated on April 27, 2017
Risk tolerance is the level of risk that an individual or organization targets. Risk management doesn't always seek to minimize risk because risk taking is the basis for business and personal gains. Instead, the goal of risk management is usually to maximize risk-reward for a given risk tolerance. The following are a few examples of risk tolerance.
1. High Risk InvestorA high risk investor who is willing to tolerate potential losses of up to 50% of their portfolio in order to maximize their potential gains.
2. Low Risk InvestorA low risk investor who will not tolerate any potential loss of capital is restricted to relatively safe investments such as insured savings accounts that have limited potential returns.
3. High Risk StartupA startup company is run by individuals with a high tolerance for risk. Although the business may fail, it also has potential to provide unusually high returns to investors.
4. Mega ProjectsA mega project such as a large bridge may have very low tolerance for risk due to its large budget and responsibility for public safety. Such a project requires intensive risk management processes to ensure that its low risk tolerance is met.
5. Professional SnowboarderMost professional snowboarders have a high risk tolerance because it's difficult to acquire superior snowboarding skills without taking any risks.
Risk ManagementThis is the complete list of articles we have written about risk management.
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