Investments
When most people hear the word "investment" the first thing they think of is "returns" – meaning interest, dividends or capital gains. After all, that is why people invest in securities of any type, isn't it – to make a return (either income or growth) on their investment?
However, the first thing that many people should consider when they invest is the issue of "risk" – the chance of loss. For many, it is the return of their investment capital that is paramount, not the return on their investment capital.
"Risk" comes in many forms and a financial planner must be aware of each of them and how they may relate to their client's "risk profile" – the client's tolerance for risk. These risks include:
Financial risk
Inflation risk
Liquidity risk
Interest rate risk
Market risk
The opposite of "risk" of course, is "guarantees". Strangely enough, there are types of risks attached to all investments, even those with guarantees. And there are even guarantees with some types of market investments which traditionally were "high risk".
It is important to work with your Certified Financial Planner to develop an investment portfolio that minimizes the risk for your level of "risk tolerance".