Risk – a situation involving exposure to danger. In the context of investing, risk is inherent; as an investor, you can’t eliminate it, but rather acknowledge that is a part of investing.
As an investor, you have an opportunity to put your capital to work to increase your wealth, but that also brings the challenge of potentially losing money on your investment.
Why is risk important?
It’s important to assess risk because it relates to our financial goals.
Let’s say you’re saving for a big down payment on your dream home and plan to make the purchase within the next year.
Would you feel comfortable losing 20% of your down payment because you made a risky investment?
I would hope not!
That’s why risk is important – it relates to the timing of your goals and the potential loss of an investment.
Risk needs to be examined with an analytical lens as an investor. It’s a critical component of the investment process and understanding how it can affect your goals and ultimately your wealth.
We will continue our discussion on risk with a future blog post that will discuss how investors measure risk.
Stay safe, or take a risk!