RISK

Risk, one of those four letter words that the majority want to avoid. Let me tell you a little secret. Even when you get into your car to drive down to the dairy (corner store) you are taking some risk. And so when we talk about investing what your attitude to risk is very important. If you have tendency to avoid risk like the plague then you may not want to invest in emerging markets or private equity. Although it is interesting, in my work talking to people about their current financial situations I have heard many people tell me that they don't like taking any risk but that they have made investments in their best friend's flower shop. That just doesn't make sense.

So, what is risk? Well in investment it is the possibility of losing the capital you have invested.Of course there are many different types of risk:

Market risk - the fact that you are getting into investing in the first place.
Financial risk - the possibility that a company (or lets be honest, a country) may get into financial difficulties.
Liquidity risk - the risk that you can't turn your investments to cash as no one wants to buy it.
Legislative risk - the government might change the rules and leave you high and dry.
Political risk - this relates to if you are investing overseas. They might change the rules which may be detrimental to your interests.

OK, so we have looked at the different kinds of risk. Naturally if you increase the risk in your investments then there is the possibility of higher returns. There is also the possibility of the losses been higher.

Where do you sit? Are you conservative or are you going to go for it? Just make sure you know before you jump in.