Chapter 1 of 10All chapters
Chapter 1 of 10
What risk means
Uncertainty, not just loss.
Definitions
In finance, risk is the chance that outcomes differ from expectations. Volatility measures that variability; permanent loss of capital is the version that actually matters.
- An asset can be volatile and safe over decades, or stable and slowly ruinous.
- Cash has almost no volatility and reliably loses purchasing power.
Risk you can bear
The relevant question is not how much risk exists but how much you can hold through without being forced to sell. That depends on your obligations, not your appetite.