Risk

Risk is the chance that things turn out differently from what you expected, including losing money.

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In investing, risk is the possibility that the outcome is different from what you hoped, including the possibility of losing part or all of the money you put in. Every investment in shares carries risk.

Where risk comes from

• The business: a product loses popularity, a competitor gets ahead, or costs rise.
• The finances: a company with a lot of debt must keep making payments, even in difficult years.
• The price paid: when expectations are very high, even good news can disappoint.
• The market: sometimes most share prices fall together, because of a recession, interest rates or fear.
• Concentration: putting most of your money in one company or one industry.

Risk is not one number

StockLab doesn't give companies a risk score. Instead, it shows facts that relate to risk: how steady revenue and profit have been, how much cash and debt the company has, whether it produces free cash flow, and, in the Advanced View, Beta, which describes how much the share price has moved compared with the market.

Risk and potential return are usually linked: investments that could grow a lot often come with a bigger chance of large losses. Understanding the risks you are taking is part of making your own decision. Diversification is one common way people manage it.