In the realm of investing and retirement planning, two crucial ideas are frequently interchanged, but possess separate definitions – risk tolerance and risk capacity.

While risk tolerance pertains to an individual’s psychological inclination to embrace risk,

Risk capacity is more closely linked to the financial capability to withstand potential losses.

In this episode of After The Paycheck, John Conley and Adam talk about how investors, especially those who are nearing retirement, could be setting themselves up for failure by confusing the two – and what to do to help avoid making those mistakes.

Let’s dive deeper into the definitions of Risk Tolerance and Risk Capacity: