Investment Risk

Investment risk refers to the potential for an investment to generate returns that are lower than expected or to result in a loss of the initial capital invested. This risk encompasses various types of uncertainties that can affect the performance of an asset or portfolio, including market volatility, economic fluctuations, interest rate changes, inflation, and specific risks associated with individual securities or sectors.Investment risk is typically categorized into two main types: systematic risk, which affects the entire market or a large segment of it, and unsystematic risk, which is specific to a particular company or industry. Different types of investments carry different levels of risk; for example, stocks are generally considered to carry higher risk compared to bonds. Investors assess these risks to determine the appropriate investment strategies and to balance potential returns with their risk tolerance. Understanding investment risk is crucial for making informed financial decisions and for constructing a diversified investment portfolio that aligns with an investor's overall financial goals.