Risk is the measurable chance that something either loses or fails to gain in value. Every type of investment is accompanied by one or more...

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Risk is the measurable chance that something either loses or fails to gain in value. Every type of investment is accompanied by one or more types of risk; diversifying a portfolio also diversifies the risk. Here are the most common types of risk:

• Market or principal risk: The chance that an investment will lose money.

• Interest-rate risk: The possibility that an investment yielding a fixed rate of return will lose value because of an increase in interest rates.

• Inflation risk: The chance that rising inflation will eat away at the value of income and/or assets.

• Credit or default risk: The possibility that a borrower will not repay an obligation as promised.

• Exchange risk: The chance of a loss from fluctuations in foreign currency-exchange rates.