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what is risk on financial investment ?

here is some explanation :

Risk on financial investment refers to the possibility that the actual return on an investment will be different from the expected return — usually meaning the chance of losing some or all of the original investment.

In simple terms:

It is the uncertainty involved in investing your money, because the outcome is not guaranteed.

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Types of Financial Investment Risks:

1. Market Risk: The risk of losses due to changes in overall market conditions (e.g., stock market crashes).

2. Credit Risk: The risk that a borrower or issuer (like a bond issuer) will default on their payments.

3. Interest Rate Risk: The risk of investment value changing due to fluctuations in interest rates.

4. Inflation Risk: The risk that inflation will reduce the purchasing power of your returns.

5. Liquidity Risk: The risk of not being able to sell your investment quickly without losing value.

6. Currency Risk: For international investments, the risk that currency exchange rates will impact returns.

7. Political/Regulatory Risk: The risk that political decisions or new laws will negatively affect investment returns.

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Example:

If you invest in the stock of a company, and the economy worsens or the company performs poorly, the stock price may fall — resulting in a loss. That loss represents the risk of your investment.

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Why Risk Matters:

Higher potential returns usually come with higher risk. Understanding risk helps investors:

Choose suitable investments.

Balance risk and return.

Diversify their portfolio to reduce total risk.

Let me know if you want this explained in Nepali too.

Method052

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