I’ve been asked the question: How much risk can I take? The answer, my friend, is all about how much you’re comfortable losing and still being able to sleep like a baby. If the idea of your investments taking a hit makes you toss and turn, you might have a lower risk tolerance than someone who can ride out a financial storm without breaking a sweat.

Let’s throw in some numbers for perspective. Say you have a portfolio of $100,000. If a 20% market dip—which is not unheard of—causes your balance to shrink by $20,000, how would you react? If you’re calm and composed, your risk tolerance might be higher, and you may be comfortable with a heavier portfolio in stocks, which historically provide greater returns but with more volatility. On the other hand, if a $20,000 drop gives you heart palpitations and sleepless nights, you might prefer a more conservative approach, opting for bonds or cash equivalents.

In numbers: a 60/40 portfolio (60% stocks, 40% bonds) might see a 12% decline in a tough year, while a more aggressive 80/20 split could see a drop of up to 16%. That’s the difference between a $12,000 dip and a $16,000 one on a $100,000 portfolio. These numbers aren’t meant to scare you, but to remind you that risk tolerance is all about knowing your limits—how much you can stomach without losing your peace of mind.

Your risk tolerance helps shape your portfolio by determining the ratio of stocks, bonds, and other investments. Whether you’re the type to buckle in for a rollercoaster ride or stick to the kiddie train, you’re making decisions that help you sleep better at night.

At the end of the day, balancing potential gains with a good night’s sleep is the golden ticket to long-term success.