Chad Leat was a successful investment banker on Wall Street for over thirty years and worked through the financial crisis of 2008. All investments carry some measure of risk. When markets are volatile, stocks, bonds, and mutual funds can lose value. Even more conservative and insured investments (e.g., CDs) carry a risk of inflation.
What Is Risk?
Risk is the uncertainty that comes along when choosing what to do with your assets when you decide to invest and it always has the potential to affect your financial security. For example, market risk may cause your investment value might rise or fall because of market conditions and business risk may affect the value of your investments. In addition, if you own international investments, events within the country (e.g., political upheaval or currency fluctuations) you are invested in can have an impact on your portfolio’s value.
Chad Leat cautions new investors that there are other types of risk. It is important for any investor to know how easy or difficult it is to sell an investment (this is called liquidity risk). Another risk factor referred to as concentration risk) is tied to how many or how few investments you hold. For example, if you have all of your money invested in a single stock, this is significantly riskier than if you had a more diversified portfolio (i.e., having your money invested into different types of investment vehicles).
In short, risk is the potential for a negative financial outcome may occur when you choose to buy any type of investment.
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