Bogleheads:Featured article/Risk and return: an introduction

Risk and return is a complex topic. There are many types of risk, and many ways to evaluate and measure risk. In the theory and practice of investing, a widely used definition of risk is:


 * “Risk is the uncertainty that an investment will earn its expected rate of return.”

Note that this definition does not distinguish between loss and gain. Typically, individual investors think of risk as the possibility that their investments could lose money. They are likely to be quite happy with an investment return that is greater than expected - a “positive surprise.” However, since risky assets generate negative surprises as well as positive ones, defining risk as the uncertainty of the rate of return is reasonable. (more...)