The recent stock market volatility, the bear market, the ever-growing inflation rate, and ongoing supply issues have taken a severe toll on the American psyche. For some, it has forever altered how they perceive and manage risk.

Understanding your risk tolerance is considered one of the most important elements of investing.

Many people see risk tolerance as a measure of their financial ability to withstand losses. In theory, the more risk you take, the more potential for reward, and more potential for loss. For example, a person who can withstand a heavy loss in their portfolio without it compromising their ability to meet their goals may choose to invest more aggressively than someone who has a lower tolerance for loss. There are several factors to consider when determining your risk tolerance including income, net worth, liquidity, and time horizon. A financial professional can help you assess your situation and determine a level of risk that’s suitable for you and your goals.

Focus on the Long-Term

It’s generally believed that people who focus primarily on the markets will experience a roller coaster of emotions. Because of this, their confidence may be tied to their market performance. On the other hand, investors that focus on their long-term strategy need only to have confidence in their strategy. If the plan is well-balanced, diversified, and managed through proper rebalancing for evolving risk tolerance, short-term market events may have less impact.