As an investor, are you able to clearly define your risk tolerance? If your answer is no, you are not alone! An important part of the planning process is understanding and defining the ability to tolerate the risks inherent in investing. ​Determining risk tolerance is critical when customizing an investment strategy that meets the needs of each individual. Your risk tolerance dictates your asset allocation and thus impacting return on equity. ​What is risk tolerance? Risk tolerance is a measure of willingness to accept higher risk or volatility in exchange for higher potential returns. It is not a factor that is permanently determined and then left unevaluated for many years. Risk tolerance is likely to change over time.