Risk can improve your chances of getting good returns. Therefore, having a clear understanding of your own goals and attitude to risk will help you work out how much risk to take. 7 general investment risks

Interest rate risk: when interest rates rise after you lock in your money, meaning you don't earn as much on your money as you would have if you'd invested at the higher rate.

Liquidity risk: there might not be buyers interested in your investment when you want to sell.

Credit risk: the organisation may not be able to repay its debts, and you might lose your money.

Economic risk: the economy may or may not be doing well, which could affect the value of your investment.

Industry risk: risks affecting a particular industry, like shortages of raw materials or changes in consumer preferences.

Currency risk: your investment is affected by changes in the value of the currency.

Inflation risk: your investment doesn't earn enough to keep up with inflation.

How risk affects your investment

Lower risk investments, like cash and bonds, have fewer ups and downs over time so you can expect the investment to perform in a similar way in the future. If you invest in lower risk investments it’s possible your money won’t grow as fast as inflation, which means your money could be worth less when you eventually spend it.

Higher risk investments, like shares and property, have a lot more ups and downs. You’d expect your returns to drop much more frequently, and in larger amounts and it’s hard to predict how they’ll perform. However, if you’re investing for a long period of time (at least 10 years) you should end up with a larger amount than if you’d taken low, or no, risk.

To sum up, investments can fail, regardless of your research. If you only have one investment, there’s a risk you won’t achieve your goal. You can protect yourself against this by making more than one investment, and making more than one type of investment. This is called diversification – not putting all of your eggs in one basket.

Summary:

Risk isn’t bad; it’s a normal part of investing. You can get the opportunity to receive
if you have clear goals and attitude to risks. There are seven main types of risk which are
risk, inflation risk, currency risk, liquidity risk, interest rate risk, credit risk and inflation risk while only two types of investment are defined. When you put your money in lower risk investments, your prediction about future returns might be true but your money could be worth less if it doesn’t keep up with the
growth. By contrast, higher risk investments, especially the long-term ones, can bring you much money although their value can change regularly. In conclusion, even when you do a lot of research, your investments still can
. Therefore, making more types of
is essential in order to reach your goal.