Financial risk is not the same as risk in our daily lives, but it does need to be considered. Typically, there is a correlation between level of risk and return, though returns are never guaranteed. Risk here refers to the likelihood of an investment falling in value. Though a higher level of risk means a higher risk of losing money, it also offers the potential for higher returns.
Risk is determined by various factors, including the asset class, the size of the company you’re investing in, the region of the investment, and the length of time you invest for. Those with less experience investing and a lower appetite for risk may favour a lower but potentially steadier return. However, high risk can be mitigated by investing for a longer period of time and cultivating a diverse portfolio.