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How to work out your risk tolerance
Your risk tolerance will be personal to you, depending on factors like your capacity and need for risk. Find out what to think about so you can work out yours.
Risk is part and parcel of investing.
However you invest, you generally need to choose a level of investment risk that you’re comfortable with - that’s your ‘risk tolerance’.
But working out your risk tolerance can be tricky, especially because it’s largely personal to you and your goals.
Find out what investment risk is, and how to work out the right level for you.
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Get startedWhat is investment risk?
Risk is the chance you have of losing money when you invest.
All investments carry an element of risk - meaning you could get back less than you put in. That's why you’ll often see the ‘capital at risk’ warning on investment and pension provider websites.
The trade-off is that risk is closely related to returns. Generally speaking, the more risk you take, the greater chance you have of losing money. But you also have a bigger opportunity to grow its value.
So, it’s important to strike a balance and take a level of risk you’re comfortable with.
Risk levels vary across investments
Some investments carry more risk than others. The table below shows you the varying risk levels of some common types of investments.
Of course, you don’t only have to invest in one type. You can choose investments with differing levels of risk, combining them so the risk level is right for you and what you want to achieve.
3 things to think about when working out your risk tolerance
As mentioned, the right amount of risk is entirely personal.
Three things worth thinking about to help you work out your risk tolerance are your capacity and need for risk, and your attitude towards it.
1. Capacity for risk
Capacity involves thinking about how much risk you can afford to take when you think about your money as a whole.
In other words, can you afford to take on an amount of risk without it potentially harming your wider financial security?
A good rule of thumb with investing is to never invest more than you can afford to lose. That’s generally money you have left in your budget after you’ve paid your bills and essentials.
This could change over time. For example, having children, buying a home, or losing your job could all shift your capacity for risk, changing how much you can afford to invest.
Investment time frame
The other element to capacity is time frame.
While returns are never guaranteed, investments tend to perform better over longer periods. That means you can usually afford to take on more risk the longer you have to invest.
In 2026/27, you can’t usually access your pension before 55, rising to 57 from 2028. So, you might take on more risk with your pension at the start of your career in your 20s or 30s as you have longer before you’ll need - or are able - to start drawing it.
Whereas, if you’re approaching or at retirement, you may want to take on a little less risk.
Bear in mind that your savings are still invested in the stock market, even if you reduce risk. So, they could be impacted by volatility and dip in value when you want to access them.
Even so, reducing risk can help make these dips less severe.
2. Need for risk
Your need for risk is essentially how much growth it would take for you to achieve your financial goals.
When you invest, you’ll usually have a target in mind. That might be a medium-term aim, like going on a dream holiday. Or it might be a long-term objective, like investing in your pension for retirement.
Your need for risk will vary depending on how much you think those things will cost. If you need to grow your wealth significantly over time to afford those goals, you may want to take on more risk.
Otherwise, not taking enough risk could leave you with a smaller pot than expected.
Meanwhile, you might’ve built up a large pot throughout your career while also having lower spending needs in retirement. In that case, you could take on less risk as lower returns could still give you enough to reach your targets.
Again, this will be linked to your time frame. If you’re younger and building a pot for retirement, your need for risk might be greater for trying to grow your wealth over time.
But if you’re approaching retirement, you might already (or nearly) have a pot big enough to reach your goals. In that case, you wouldn’t need to grow your wealth as much, possibly making a lower level of risk more sensible.
Inflation risk
Another element to consider within need is inflation risk. Inflation is the speed at which prices are rising, and can eat into your money’s spending power over time.
For example, if inflation is 2% for a year, £100 of goods and services will cost £102 in a year’s time.
Investing can be a useful way to grow your wealth and beat inflation. That can mean taking on enough investment risk to do so.
If you don’t, your money could lose value in real terms as the cost of living keeps rising.
This makes it a balancing act, because not taking enough investment risk could expose you to inflation risk.
Use the PensionBee Inflation Calculator to see how much your savings could be worth in future. It shows you how inflation will affect your current pension pot, and the impact of increasing your contributions.
You can also adjust the rate of inflation and your retirement age, allowing you to model different scenarios.
Seeing the numbers laid out like this can help you make more informed decisions as to how much investment risk is right for you.
3. Attitude towards risk
Finally, attitude is your individual feeling towards risk.
Investments will usually rise and fall over time, and there’s always the chance you’ll get back less than you invest.
You might be able to financially withstand losing some value on your investments. But you also need to be able to handle the fluctuations emotionally.
Essentially, if it’ll worry you to see your invested wealth move up and down, it may be worth taking on a lower level of risk.
It can be hard to assess your own attitude to risk. There are lots of tools online which can help you with this. They’ll usually ask you questions about things like:
- how you feel about the idea of your money going up and down in value;
- how much you know about stock markets and investments; and
- what you think of when you hear the word ‘risk’.
These tools aren’t an exact science, and they won’t give you a perfect answer to what your risk tolerance is. But they can act as a good starting point to help you figure out how you feel about investing and risk.
The Financial Conduct Authority (FCA), the UK’s main financial regulator, has a few different tools and resources available on its InvestSmart hub.
Summary
Risk indicates the potential losses and opportunity of an investment. It’s important to choose investments that are suitable for your individual approach to risk. It's also worth reviewing the risk you’re taking on throughout your life, so you can be sure it stays appropriate for your circumstances.
Each PensionBee plan has a ‘risk/reward profile’, giving you an indicator of how much risk you’ll take on when investing in them. That way, you can check that your plan has a risk level that suits you.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 27-05-2026
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