Risk tolerance
An investor's willingness to live through swings in portfolio value without changing decisions: a matter of temperament and experience rather than a computed quantity.
How to read the number
It is tested by behaviour in the first serious drawdown, not by a questionnaire: the real boundary lies where a person sells in order to stop looking at the account.
When the metric lies
Measured on a rising market it is systematically overstated: while no falls have happened, an imagined loss is far easier to bear than a real one.
Also known as: tolerance for volatility