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Know Thyself: How Risk-Tolerant Are You Really?

Many Happy Returns

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Understanding Risk Tolerance in Investing

This chapter explores the intricate concept of risk tolerance and its distinction from risk capacity and risk perception in the realm of investing. It underscores the subjective nature of risk tolerance and its variability among individuals, highlighting the significance of self-awareness in managing comfort levels with risk. The chapter also addresses the challenges faced by new investors in assessing their risk tolerance and discusses classic research that aids in quantifying attitudes towards financial risk-taking.

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