Personal Risk Assessment
Risk is an important concept, but one without precise meaning.
- In investing, risk is associated with return.
- The more risk that an investment incurs, the greater the anticipated return. Conversely, the more risk incurred, the greater the potential for disaster.
- For example, a bond with a CCC rating may have a much higher interest rate than a bond with an AAA rating, but the CCC bond also has a much greater potential for default and would be considered a risky junk bond.
- There is also another aspect of risk and that is as a screening tool.
- Because there are thousands of different stocks, bonds and mutual funds, understanding how much risk you personally are willing to accept will help you define the investment vehicles that are suitable for you alone.