Investing always carries risk: the chance that outcomes will differ from expectations, often in an unfavorable direction. Prices can drop, borrowers can default, and liquidity can vanish just when it is needed most.

Different assets carry different kinds of risk. Shares fluctuate with company earnings and market sentiment. Bonds face credit and interest-rate risk. Real estate depends on local conditions and financing costs. Even cash is not immune, as inflation erodes purchasing power over time.

Investors manage risk rather than eliminate it. Diversification spreads exposure across assets. Time horizon matters too; short-term swings can be sharp, while long-term returns may smooth out. Clear objectives help determine how much volatility is tolerable.

Key dimensions

• Market risk from price movements
• Credit risk from borrower default
• Liquidity risk when assets are hard to sell
• Inflation risk reducing real value