Risk tolerance generally means how much risk a person will be willing to take. While risk capacity roughly means how much risk a person should take.
Risk tolerance is more of a mental and emotional representation. It has to do with the mental structure of a person. Some may take more risk, some may take less risk, and some may not even take a risk.
But risk capacity explains exactly how much risk a person should take or can take. It is possible to calculate the figure. By considering one’s age, monthly income, monthly expenses, physical condition, social status, life goal, etc, the value of risk capacity can be calculated.
The difference between risk tolerance and risk capacity is subtle. An entrepreneur should have clarity over these concepts. Especially, if the entrepreneur or the businessman is trying to start a business from the bootstrap level.
