When it comes to money, most people are uncomfortable with the possibility of <a href="https://www.thenationalnews.com/business/markets/2022/09/18/investors-seek-refuge-from-market-chaos-in-cash-despite-surging-inflation/" target="_blank">losing their hard-earned cash</a>. The fear of loss puts many off investing; <a href="https://www.thenationalnews.com/business/money/why-investors-need-to-keep-their-emotions-under-control-in-this-volatile-market-1.1033131" target="_blank">loss aversion </a>suggests that the pain of loss is twice as strong as the pleasure of gains. Although <a href="https://www.thenationalnews.com/business/money/game-on-how-millennials-and-gen-z-are-changing-investing-1.1201348" target="_blank">investing is not the same as gambling</a>, there are certain risks, including loss of capital or minimal returns. There is a balance to strike between protecting against loss and <a href="https://www.thenationalnews.com/business/money/2022/10/11/ten-investment-bubbles-inflated-by-a-decade-of-cheap-money/" target="_blank">taking certain risks to ensure your money outpaces inflation</a>. Knowing your risk tolerance can help you to maintain an appropriate <a href="https://www.thenationalnews.com/business/money/2022/11/18/why-investors-should-review-their-portfolios-amid-recession-fears/" target="_blank">asset allocation in your portfolio </a>to grow your money and prevent panic selling. Investments can be seen on a spectrum of risk. Low-risk investments place emphasis on preservation of capital over the reward potential. A cash savings account in a reputable bank is a low-risk investment. Other investments, such as government bonds and some pension accounts are low risk, often guaranteeing your capital, but making small returns. However, inflation is almost certainly guaranteed, which reduces the true value of your money over time. On the other hand, investments deemed to be higher risk, such as cryptocurrency or forex trading, are more speculative, meaning there is an increased chance of losing some or all your money. Nevertheless, there is often a greater potential for higher returns. Investing in single stocks also poses risk; if the company you invest in goes bankrupt, you may lose your money. Some people have a mix of low and high-risk investments in their portfolio. For example, a person may allocate 70 per cent of their money in globally diversified index funds, 25 per cent in government bond funds, and 5 per cent in high-risk investments. This means that most of their assets are growing in line with the stock market, but they maintain a portion of their money in low-risk bonds for downside protection. They do not put their entire net worth at stake with risky investments, but the small allocation allows them to speculate if they wish. This is asset allocation. The question is: how do you decide on the appropriate asset allocation for you? When it comes to investing, you need to determine where on the risk tolerance spectrum you fall. There are certain questions you can ask yourself to help support your investing decisions: Although you may feel comfortable with the asset allocation you decide upon, there are inevitably still some risks involved in investing. So, how can you manage investing risk? It is important to remember that risk tolerance is fluid and will change depending on what life stage you are in and how your knowledge develops. If you are exposed to a high level of risk and you struggle with a market downturn, rebalance to lower the portion of your portfolio allocated to speculative investments. Having an asset allocation based on your personal risk tolerance will help you feel confident, grow your portfolio at an appropriate level and ward off investing fear. <i>Alison Soltani is the founder of </i><a href="http://leapsavvysavers.com/"><i>LeapSavvySavers.com</i></a>