Risk typically is defined as the exposure to the possibility of loss or injury, but risk means different things to different people.

In an investment context, anything that can change in price is classed as a risk asset. Totally risk-averse individuals believe they are shielded from risk by doing nothing, but this fails to recognize that this virtually guarantees a loss as inflation erodes the purchasing value of their money. For example, according to the Bureau of Labor Statistics, average prices in 2020 are 97.38% higher than average prices in 1990. In other words, $197.38 today buys what $100 did in 1990.

Determining an appropriate and acceptable risk profile is a key part of a detailed financial plan, which is the most effective way to formulate a suitable investment approach.

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