RiskMetrics - What is Risk?
What is risk?
Learn how risk is defined, and how it relates to time horizons and objectives
Risk is uncertainty
Simply put, risk is uncertainty. The more risk you take, the more you stand to lose or gain. You cannot expect high returns without taking substantial risks.
Risk and time
It is important to take into account your investment time horizon when analyzing risk. The first question to ask when making an investment is: "When do I need the money?" In general, you can accept more risk if your investment horizon is longer. Why? Because you have more time to recoup potential losses along the way.
Risk and objectives
Risk should be measured against pre-defined objectives. Investors generally have either absolute return goals (e.g., 15% annual return) or relative return objectives (e.g., outperform the S&P 500 index by 1% per annum).