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Risk assessment in investment is a crucial step in making informed investment decisions. It involves evaluating the potential financial risks associated with an investment and determining if it aligns with your financial goals, time horizon, and risk tolerance.
Key risks to consider include market risk, where the value of investments fluctuates due to market conditions, and credit risk, which arises if a company or bond issuer fails to meet obligations. Liquidity risk, the ability to quickly sell an investment without significant loss, and inflation risk, where returns fail to keep pace with rising costs, are also important factors.
A balanced investment portfolio tailored to your risk tolerance can mitigate these risks. Diversification—spreading investments across asset classes, industries, and geographies—helps reduce exposure to any single risk. Regularly reviewing your investments ensures they remain aligned with your objectives and market conditions. Seeking professional advice can further support sound risk management.
Key risks to consider include market risk, where the value of investments fluctuates due to market conditions, and credit risk, which arises if a company or bond issuer fails to meet obligations. Liquidity risk, the ability to quickly sell an investment without significant loss, and inflation risk, where returns fail to keep pace with rising costs, are also important factors.
A balanced investment portfolio tailored to your risk tolerance can mitigate these risks. Diversification—spreading investments across asset classes, industries, and geographies—helps reduce exposure to any single risk. Regularly reviewing your investments ensures they remain aligned with your objectives and market conditions. Seeking professional advice can further support sound risk management.