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 investing, one widely used definition of risk is: "... the uncertainty that an investment will earn its expected rate of return."

Notice that this definition does not distinguish between loss and gain. Investors typically 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, because risky assets generate negative surprises as well as positive ones, is is reasonable to define risk as the uncertainty of returns. (more...)