There are many key factors influencing investment risk. Two of them are time horizon and liquidity of investments. These are the key factors influencing both risk assessment and management. Investors will take low risk in order to get their funds immediately accessible. Meanwhile, high risk investment cannot be liquidated immediately, thus they place their money in riskless securities. For individual investment portfolios, time horizons are really significant.
Another indicator like the Morningstar risk rating could also help. By definition, Morningstar rating is a publicly traded mutual funds and ETFs ranking. It is an investment research firm assessing risk across five levels. The result could help investors to immediately identify funds necessary for their portfolios. This rating would rate from 1 to 5. 1 represents the worst performance, and 5 for the best. Variations in the fund’s monthly returns, downside variations, compared to similar funds are all the ranking is about. It is an objective agency affixing risk ratings to mutual funds as well as ETFs. So, investors could match their own needs to their portfolio risk profile.
There are many types of financial risk. To put it simply, theoretically, investment risk affecting asset values are in the two classes. The first one is systematic risk and the second one is unsystematic risk. In other words, investors are actually prone to both risk systematically or unsystematically. Systematic risk or market risk is a risk affecting the whole economic market. It generally affects a large percentage of the total market. Thus, market risk is the lost of investment due to political risk and macroeconomic risk.