Risk
The chance that an outcome is permanently worse than you needed it to be.
Worth separating from volatility. A value that drops and recovers while you were not selling did not cost you anything. A value you had to sell into, or a company that went to zero, did.
Risk is also not only about investments falling. Holding decades-long money in cash carries a real and near-certain risk: inflation quietly reduces what it buys, every year, with no bad day to point at.
That is the trap in “safe” — every choice carries some risk, and the safest-feeling option often carries the one nobody notices.
The practical question is not how to avoid risk but which risks you are being paid to take, and which you are carrying for free.
Words on this page
- Volatility — How much and how sharply an investment's value moves up and down.
- Inflation — The gradual rise in prices that means the same money buys less over time.
- Option — A contract giving the right to buy or sell something at a set price before a set date.
Related terms
Covered properly in Learn.