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Q: I’ve heard about investment risk. What does this mean?

A: Anytime you make an investment—whether it’s to buy a house, shares on the stock market or certificates of deposit (CDs)—you are taking a risk. You could lose money if, for example, the value of the stock you own falls. Or you could lose buying power, if the rate of inflation outpaced the return of your CDs. With any investment, there is some element of systemic or market risk, which is anything that affects the overall economy or securities market. Examples of market risk include inflation, interest and foreign-currency rates as well as sociopolitical influences like terrorist attacks. Some investment risk is non-systemic, meaning it is specific to a certain industry, company or product. This could be damage caused by poor management, lawsuits or loan defaults. Risk levels vary across asset classes—stocks, for example, are generally riskier than Treasury bonds—but can be managed by doing thorough research, staying attuned to broader economic developments and diversifying across a range of assets and industries.

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