What typically affects an investor's risk tolerance?

An investor's risk tolerance is primarily influenced by personal factors such as age, income, and family situation. These elements shape an individual’s financial goals, investment horizon, and emotional response to market fluctuations.

For instance, younger investors may have a higher risk tolerance because they have more time to recover from potential losses, whereas older investors may be more conservative as they approach retirement and rely on their investments for income. Similarly, an individual’s income level can determine how much risk they can afford to take; those with a stable and high income might be willing to invest in riskier assets, while those with limited income may prioritize preserving their capital. Additionally, family responsibilities, such as dependents or impending college expenses, can further dictate how much risk an individual is willing to accept, as these factors add to the financial responsibilities that need to be managed.

Other choices, while they can influence investment decisions, are less directly related to personal risk tolerance. Global market trends and the performance of a single stock may affect market sentiment but do not inherently change an individual’s risk tolerance, which is deeply personal and based on their circumstances. Recommendations from financial advisors can guide investment decisions but should consider the investor's unique risk profile rather than dictate it.