Risk is associated with everything in life. However it is important to understand the concept of risk as pertains to finance. We earn money and then spend it. What remains is our savings. we want to invest those savings optimally so that they grow and fund our needs in the future. needs are mostly time dependent where certain things crop up in near future whereas there some needs in the far distant future. Think sickness and old age. Sickness can be around the corner and demands expense in terms of medicine,doctor fees payment etc.You want immediate cash to cover these expenses and hence a part of your savings needs to be invested in risk free instruments. Risk free entails total capital recovery for immediate usage. old age expenses especially for young savers are not immediate requirements hence they can be saved in higher risk instruments Risk is the ability of a person to be able to stomach the changes in capital mostly in a downward direction.
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