Risk
What is investment risk?
Risk is the chance your investment goes down instead of up. Higher risk means bigger potential gains but also bigger potential losses. Lower risk means steadier but usually smaller returns.
What affects risk?
Shares are generally riskier than bonds. A single company is riskier than a fund holding hundreds. Investing for a short time is riskier than investing for decades, because you have less time to recover from drops.
How do you manage risk?
Spread your money across different investments. Don’t put everything in one company or one country. Hold a mix of shares and bonds. Invest for the long term so short-term drops matter less.
Key points about risk
- Higher risk can mean higher returns, but also bigger losses
- Diversification reduces risk. Spread your money around
- Time reduces risk. Longer horizons smooth out ups and downs