As investors, what we are really trying to do is to ensure that we have enough money for a goal in the future. This goal may be a comfortable retirement, children’s education or a big purchase. The risk to us, simply put, is that we will fail to achieve that goal. This may happen because of many different reasons. A practical approach, which we can all adopt, is to know what these reasons could be and what steps we can take to protect ourselves.
What is Risk?
There are measures of risk that have some degree of utility when it comes to framing investors’ expectations. But risk cannot be properly measured in a spreadsheet. When it comes to money and investing, we’re not always as rational as we think we are—which is why there’s a whole field of study that explains our sometimes strange behaviour.