Financial Risk

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Definition of 'Financial Risk'

Financial risk is the uncertainty of financial returns. It is the potential that an investment will not generate the expected return. Financial risk can be caused by a variety of factors, including economic conditions, political events, and natural disasters.

There are two main types of financial risk: systematic risk and unsystematic risk. Systematic risk is the risk that affects all investments in the market. This type of risk is caused by macroeconomic factors, such as inflation, interest rates, and economic growth. Unsystematic risk is the risk that is specific to a particular investment. This type of risk can be caused by factors such as the company's financial health, management, and industry.

Financial risk can be managed by diversifying your investments. This means investing in a variety of assets that are not correlated with each other. By doing this, you can reduce the overall risk of your portfolio.

Here are some additional tips for managing financial risk:

* Be aware of your risk tolerance. This is the amount of risk you are comfortable taking on.
* Set financial goals. This will help you to focus on the investments that are most important to you.
* Don't panic when the market is volatile. It is normal for the market to go up and down.
* Seek professional advice. A financial advisor can help you to create a diversified portfolio that is appropriate for your risk tolerance and financial goals.

Financial risk is an important concept to understand. By understanding the different types of financial risk and how to manage them, you can make informed investment decisions that are in line with your goals.

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