There are a few factors that can contribute to your overall risk tolerance level. A major one is age, and in turn, your proximity to retirement.

If you are younger, you can afford to be a little more adventurous in your investing, because time is on your side. In fact, it is encouraged that you diversify and invest in some higher risk/higher return stocks.

However, as you edge closer to retirement, it is recommended that you gradually adjust your risk level. The reason for this is simple—if you are closer to retirement, you do not have as much time to recover from a potential downturn.

Because the markets are volatile, those who are younger in age can spend their lifetime weathering the storms as they accumulate wealth over time. Those closer to retirement will want to taper their investments in more volatile stocks and to instead focus on nurturing the earnings that they have gathered over time.

Risk tolerance may also go down with age. Think about the difference between a new driver in his late teens and an experienced driver who is a senior citizen—who tends to drive more carefully? Normally the senior citizen will be more conservative in their driving habits, often even overly cautious.

This modification in driving according to age and declining ability is comparable to what can happen with older investors—they become a little less willing to “test the limits.” Similarly, an older driver who does get into an auto accident has less of a chance to survive and recover, as does an older investor who sustains a significant investment loss.

However, there are other variables that can also determine risk tolerance even later in life, including the person’s general attitude towards risk and the amount of available assets. Due to our modern extended life span, investing does not end near or at retirement—it just gets modified accordingly.