A key component of risk tolerance should be the time duration you expect to have the money invested. Most investment goals fit into one of three time frames: short-term (three years or less), medium-term (three to 10 years) and long-term (anything beyond 10 years).
Read MoreHow the rich guard their millions
Obviously, for 20-somethings, retirement is a long-term goal and generally is considered one worthy of involving more investment risk because of that kind of time horizon. Those same 20-year-olds, however, might instinctively have a lower risk tolerance due to witnessing the 2008-2009 market crash and its effect on their parents' savings or their own college funds.
That disconnect between risk aversion and time duration can ultimately mean a huge difference in portfolio growth over decades, based on historical returns of the stock market (generally viewed as about 7 percent annually).
The flip side, however, would be if your time horizon is short. If you're saving for a down payment on a house and will need the money in, say, two years, having an overly risky portfolio is unwise.