Risk capacity, unlike tolerance, is the amount of risk that the investor "must" take in order to reach financial goals. The rate of return necessary to reach these goals can be estimated by examining time frames and income requirements. Then, rate of return information can be used to help the investor decide upon the types of investments to engage in and, the level of risk to take on.
Read more: What is the difference between risk tolerance and risk capacity? http://www.investopedia.com/ask/answers/08/difference-between-risk-tolerance-and-risk-capacity.asp#ixzz3jwLDG3Dt
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