Home Dictionary

Dictionary

Investment Risk

Definition

Investment risk is normally thought of as the risk of loss. In academia, risk is often synonymous with volatility, positive or negative. To earn a return greater than the treasury (or sovereign) bond return in your local marketplace, you must accept some degree of investment risk.

Using the term Investment Risk :

Mrs. McGrath is 80 years old and has the preponderance of her investment portfolio in risk-free treasury securities. However, in order to allow her portfolio to grow at a rate that keeps up with inflation, she accepts investment risk in approximately 20% of her portfolio which should result in a higher return over time than her risk-free treasuries. This 20% is exposed to significantly more volatility though and could even result in a permanent loss of capital.

Pay Special Attention To :

Study investment risk carefully. Ensure you understand the attendant risks of any security you are considering. The risk of a security being illiquid is a very big risk, meaning that you may not be able to sell when you want to sell. Diversification is one of the best ways to reduce investment risk. You should hold a diversified portfolio in order to reduce your overall investment risk.

Rate this definition:



Related terms

illiquid , hedging , counterparty risk