Investment risk is an inevitable part of investing and it is important to understand how to identify and measure different types of investment risk. Knowing the different types of risks associated with an investment, as well as how to measure them, can help investors make informed decisions and protect their capital.

The most common type of investment risk is market risk, which is the risk of an investment losing value due to changes in the overall stock market. Market risk can be measured by looking at the volatility of a particular investment. Volatility is a measure of how much an investment’s price can fluctuate over time, and is a good indicator of how risky an investment is.

Another type of investment risk is credit risk, which is the risk of an investment losing value due to a borrower’s inability to make payments. This type of risk is typically associated with investments such as bonds, where the investor is lending money to the borrower. Credit risk can be measured by looking at the credit rating of the borrower, as well as the interest rate being offered on the investment.

Inflation risk is another type of investment risk that investors should be aware of. Inflation risk is the risk of an investment losing value due to inflation, which is when prices of goods and services rise over time. Inflation risk can be measured by looking at the inflation rate of a particular country or region, as well as the expected rate of inflation over the life of the investment.

Liquidity risk is another type of investment risk that investors should be aware of. Liquidity risk is the risk of an investment losing value due to its difficulty in being sold or converted into cash. This type of risk is typically associated with investments such as real estate, where the investor may not be able to easily sell the investment if they need to. Liquidity risk can be measured by looking at the market for the investment and assessing how easy it is to sell the investment.

Finally, there is political risk, which is the risk of an investment losing value due to political or economic instability in a particular country or region. Political risk can be measured by looking at the political and economic environment of the country or region in which the investment is located.

By understanding the different types of investment risk, as well as how to measure them, investors can make more informed decisions and protect their capital. Understanding the risks associated with each investment can help investors make informed decisions and protect their capital.