Risk in Investing: How to Simply Calculate and Understand It

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Many people associate the word "investing" with profit only, but the reality is that every investment, no matter its type, carries some degree of risk. The most important question here is: Can we avoid risks? The answer is no. But we can understand, measure, and deal with them intelligently.

What is Risk in Investing?

Simply put, risk is the possibility of an unexpected event that affects your investment. This could mean a lower-than-expected return, a loss of part of your capital, or delayed profits. Risk varies from one investment to another; buying real estate is different from entering the stock market or investing in a startup. The goal isn't to avoid risk, but to understand it and make decisions based on awareness and preparation.

Types of Risks in Investing

Market Risk: Arises from economic or political events or even rumours that affect prices, causing asset values to fall even if they are fundamentally strong.
Company Risk: Relates to the performance of a specific company, such as weak management or declining profits, which can affect the stock price regardless of the market situation.
Liquidity Risk: Refers to the difficulty of selling an investment when needed, such as real estate in remote areas that is hard to sell quickly.
Currency Risk: Occurs when you invest in a currency other than your local one, as changes in exchange rates can affect your actual return.

How Do We Measure Risk?

The best way to understand the degree of risk is to compare the expected return against the potential for loss, while also considering your own ability to tolerate losses.

Examples:

Bank fixed deposits are considered one of the lowest-risk investments, but they offer a low return.
Stocks provide higher returns but are more volatile.
Investing in startups can be tempting but carries the risk of losing your entire capital.

Is Risk Always a Negative Thing?

Risk is not the enemy; it's a fundamental element of investing. Without risk, it's impossible to achieve a return. The difference lies only in how you manage it. A smart investor doesn't run from risk but studies it, sets their tolerance limits, and deals with it confidently. Someone who understands risk is better equipped to seize opportunities and achieve their financial goals in a balanced way.

How to Manage Risk Smartly

The first step is knowledge. Don't enter into any investment you don't understand.

Second, diversifying your investment portfolio is essential to reduce the impact of any unexpected loss. Do not put all your money into a single sector.

Third, keep part of your funds as liquid cash in case of emergencies, and be prepared for different scenarios.

And do not forget the importance of consultation. Speak with a local financial expert who can help you evaluate your options and develop a plan that aligns with your goals and risk tolerance.

Conclusion

Risk in investing is a reality that cannot be ignored, but it is not a reason to be afraid. Those who handle it with awareness and know how to manage it will be better able to achieve rewarding returns without making random decisions or hasty reactions. Success in investing doesn't mean running from risk, but understanding and dealing with it rationally. With digital tools, trusted advisors, and diverse opportunities in the local market, it has become easier to invest more safely and intelligent