Everyone has a tendency to take risks; it is just that this varies from one individual to another.
One way of looking at risk is whether you drive your car in the slow lane or the fast lane.
With investing, your risk tolerance can be used to determine the percentage of your portfolio that is exposed to different asset classes. For instance, investing in equities is more akin to driving in the fast lane. You may get from A to B quicker - generating higher returns - but there is a greater associated risk. While broadly speaking, bonds are in the slow lane of investments; a safer option that tends to give a lower but more guaranteed return than shares.
It is all to do with the ‘risk/return trade-off’. Risk means you have the possibility to lose some, or even all, of your original investment. Low levels of risk are associated with low potential returns, while high levels of risk are associated with high potential returns.
Your risk profile therefore is important in helping to establish the right mix of asset classes for your portfolio.