Investment Risk

Posted in Finance, Accounting and Economics Terms, Total Reads: 482

Definition: Investment Risk

Investment risk is possibility that the actual return on an investment will be different than the expected return. Greater the difference, greater the risk.

Investment is risk free when expected return equals actual return. Risk and return always follow inverse relation.  Investment opportunities which have inherently low risk offer low returns. High risk investment compensates the investor with higher return for the additional risk he/she has incurred.

Example would be US government’s T-bill which offers low return since it is one of the safest investments. On the other hand, corporate bonds offer a higher rate of return due to higher risk associated with it.

Risk management is one of the practices in the world of finance that deals with risk assessment and making investment decisions.


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