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Risk and Portfolio Context - Essay Example
Author : hjacobson
Finance & Accounting
Pages 6 (1506 words)
Investment, though necessary for a secure future, is a very risky business. It has the ability to help the investor in building a secure future if done with proper care and at the same time have the ability to ruin the investor present by failing…
Risk is a core element of investment and is inseparable from investment function. According to investment theories and actual practices, it is evident that there is no possibility of return over the investment without the assumption of risk in that investment by the investor. A conscious and willing assumption of risk by a knowing investor, expecting to earn a measure of return, lies at the heart of investment process (Sedleck, 2008, pp.1).
Webster defines risk as “the possibility of loss or injury” (Sedleck, 2008, pp.3), in investment risk is the possibility of monetary loss through the loss in value of the investment instrument. Risk is a subjective measure with many possible definitions. This is because different investors adopt different investment strategies to attain their investment objective. Therefore, the subjectivity of the risk is its only main characteristic. It is an unavoidable function of investment, intelligent investment strategies can help to reduce it but nothing can help to ignore, negate or make risk zero (Sedleck, 2008, pp.3).
Types of Investment Risk
Investment risks are of two types systematic and unsystematic, however, they hole various other kind of risk in these two head branches of risk. ...