In investment speak, "risk" typically refers to the variability of return. If you invest in a stock, for instance, you have no guarantee that you will get back the amount you invested, let alone make a profit. You may or may not get a dividend payment, depending on how the management decides to use any cash it generates. This makes stocks a high-risk investment. On the other hand, you could also hit the jackpot and get a really big payout.
There are also low-risk investments such as government bonds, thus, the so-called risk-free rate associated with certain government securities only provides for a basic return. However, you will not see any growth in your return beyond that. You will be able to preserve your basic purchasing power, but you may face the risk of not being able to meet your long-term goals, such as saving for retirement.
Return to Articles list