When assessing risk tolerance, which factor is most relevant?

When assessing risk tolerance, age is a significant factor because it often influences an individual's investment horizon and how they react to market fluctuations. Generally, younger investors have a longer time frame to recover from potential losses, allowing them to take on more significant risks in pursuit of higher returns. In contrast, older investors may prioritize capital preservation as they approach retirement, leading them to prefer more conservative investment strategies.

Moreover, age can also correlate with life stages, each having unique financial goals and obligations (such as buying a home, funding education, or retirement planning) that shape one's willingness to accept risk. Taking on too much risk at an advanced age could threaten financial stability when time is limited for recovery from market downturns.

While factors like investment knowledge, personal goals, and income level also play important roles in determining risk tolerance, they may not be as universally applicable as age in influencing an individual’s capacity and willingness to take on investment risk.