CNBC.com recently talked with Craig Cowles, a certified financial planner and partner at Cardinal Wealth Advisers, about risk tolerance and the variables that affect it.
CNBC: What are the key considerations that go into determining an investor's risk tolerance?
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Craig Cowles: The No. 1 consideration is looking at how long until the person will need the money. The breakpoint is a 10-year horizon. We're good with much higher risks for anything beyond 10 years than less than that. Another consideration is current liquidity: How much cash do you actually have on hand? If you start investing all your money thinking you won't need it for 10 years but you don't have enough current liquidity to cover your current expenses, that would be a problem.
Also look at factors like: What kind of job do you have? What are the risks there? Is it a permanent position or a contract job? How many dependents do you have? Do you have a child or other family member with special needs? That all goes into whether you need money now or 10 years or more down the road. Also, think about the value of money to you.