A worried-sick mom. An ER that cares for both. www.GreaterPascoChamber.com 7 A sick child. ERtampabay.com Four Things to Know About Risk Whether you’re already investing or are just thinking about it, you should understand risk and the role it plays in a portfolio. And although it may seem simple enough on the surface, risk can be one of the most difficult concepts to grasp – especially for new investors. To help clear things up, here are four things you should know: 1. Risk has many faces. Usually when people talk about risk, they’re referring to investment risk: You purchase a stock at $50 a share, for example, and a year later it’s worth only $25. Investment risk is relatively easy to understand, and it’s measureable based on the ups and downs in an investment’s price. The more volatile it’s been, the more risky the investment is considered to be. Unfortunately, investment risk is only one investors face. There are plenty of others that aren’t so easy to understand or measure. For example, there’s: Market risk. While investment risk has to do with a specific investment, there’s also the risk that the entire market will decline – remember what happened to stocks during the Great Recession – and pull your investment down with it. That’s market risk Inflation risk. Inflation is the overall increase in prices in an economy. It creates the risk that an investment’s return won’t be enough to overcome its impact. For example, inflation runs 2% a year and your investment returns only 1%. That means you have lost “purchasing power.” As a result, even with your returns, it would buy less at the end of the year than at the beginning. Opportunity risk. Some investors believe you can avoid risk by investing conservatively. However, there’s opportunity risk, which is the possibility of missing out on the chance to earn better returns by being more aggressive This is just a small sampling. There are other risks, including some specific to certain types of investments. For example, bond investors face default risk – the risk the issuer will fail to make interest payments or repay the bond’s par value at maturity. Continued on p10
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