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Investment Risk

What is investment risk?

Investment risk is the possibility that an investment’s actual return won't match its expected return.

A variety of factors can cause investment risk: political instability, market conditions, or public perception. Investment risk is often correlated with investment returns. For example, U.S. treasury bonds are one of the safest investments, and they generally offer low returns. Many individual stocks are quite risky, but some can generate high returns. Investors should gauge their risk tolerance and decide which investments can give them the most return with the least amount of risk. The most common measure for investment risk is standard deviation. Risk-adjusted return is measured by metrics like the Sharpe ratio or Treynor ratio.