Risk tolerance is your ability and willingness to lose some or all of your original investment (i.e. the money you put into the investment) in exchange for greater potential returns. The more risk you take the higher the potential return.
To work out how much risk you are taking you to need to figure out how much of your money is in each basket.
There are growth assets which are more subject to volatility and offer the potential for a higher return– Property, shares (Australian and International)
Then there are defensive assets like cash and fixed interest. These assets are more conservative and offer little potential for a return higher than the cash rate.
The more exposed you are to growth assets, the higher the risk you bare.
When considering the level of risk exposure, its important to consider the time frame for the investment. i.e. How long will it be invested for? When will I need to access it? If you plan to have the assets for the long-term then you can potentially have a greater exposure to growth assets as they will have time to wait out the slow economic cycles and inevitable ups and downs of the markets. However, if you require access to the investment in the short term you would likely take on less risk in order not to erode the capital that was invested.