Risk vs. Reward refers to the balance between the potential gain (reward) and the likelihood of loss (risk) in an investment. Generally, higher-risk investments offer the potential for higher returns, but they also come with a greater chance of losing money. Conversely, lower-risk investments tend to offer more stability but with smaller returns.

Risk tolerance is an individual’s ability to withstand potential losses. It’s shaped by factors such as financial goals, time horizon, and personal comfort with market fluctuations. Understanding your risk tolerance is crucial because it helps you choose the right investments for your situation, avoiding undue stress or panic when markets become volatile.

• High-risk investments include stocks, cryptocurrencies, and speculative assets. These have the potential for higher returns but can experience significant price swings or even losses.
• Low-risk investments include government bonds, savings accounts, and blue-chip stocks. These are more stable, offering lower returns but with less chance of losing your capital.

Balancing risk and reward according to your tolerance ensures you’re investing in a way that aligns with both your financial goals and your ability to handle market fluctuations.