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Investment Risk Definition, Discussion and Quiz

We know it instinctively. It's a multi-headed beast that needs to be examined from a variety of angles.
  1. Define - Define and describe investment risk.
  2. Context - Use investment risk in a sentence.
  3. Quiz - Test yourself.
face pic by Paul Alan Davis, CFA
Updated: February 18, 2021
A key ingredient to wise investing is the process of forecasting what can go wrong.

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Understanding Investment Risk


Investment Risk is a general term used to describe the variability or dispersion of returns of an asset over a stated time period. It can be measured in a variety of ways; including, variance, standard deviation, beta, value at risk and semi-deviation, among many others.

The measures above are quantitatively derived and objective measures of investment risk identified by practitioners and academics since the 1950s.

Synonyms: variability, dispersion

For context, here our focus is on the risks associated with the pricing of individual securities and portfolios. In both cases, more subjective risks are described in great detail in public filings if the investments are are public. But if they are private, then the burden is on the investor to inquire about risks.

The risks section of an annual report for US-based companies that file in accordance with SEC requirements is vast. Sometimes it eclipses 30-pages and is written in fine print by corporate attorneys. Risk disclosures for a public mutual fund are less elaborate, but worth a look for detail-oriented investors.

In a Sentence

Jim:  When you started this firm, how did you connect with clients on the topic of investment risk?
Bev:  I asked them to define it.


Many terms have 4-5 minute videos showing a derivation and explanation. If this term had one, it would appear here.

Videos can also be accessed from our YouTube Channel.

Video Script

If this term had a video, the script would be here.


Click box for answer.

The most common inputs to investment risk calculations are past observations. | True or False?


Which of the following is not an investment risk measure? | Alpha or Beta or Variance?


Questions or Comments?

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