Understanding Risk

• Definition: Risk is the exposure to danger, harm, or loss. In finance, it refers to the chance of losing assets or earning potential.
• Types of Risk:
  • Loss of Assets: Example – Investing in a failing company.
  • Loss of Earning Potential: Example – A construction worker injured on the job might have to switch to a lower-paying role.
• Why Risk is Inevitable:
  • Factors like changes in the economy, job loss, unexpected expenses, and consumer behavior add uncertainty to financial decisions.