The amount of investment risk you feel comfortable with (i.e. what you can sleep with at night) is called investment risk tolerance. However, market volatility often complicates the term. In good markets, your risk tolerance is higher, and in bad markets your risk tolerance sinks. Additionally, does it really make a difference if your portfolio dropped 15% or 20% in 2008? On a half million dollar portfolio, that’s a drop of $150,000 or $200,000. While $50,000 is certainly a lot of money, the fact is your investment portfolio dropped . . . and by a lot! Either way, you’re going to be frustrated with the paper losses. Because of this, we focus on two additional components.