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** This lesson is generated with AI assistance and approved by Danny Nelson. This lesson will communicate the essence of the topic for now until Danny can create a full lesson. **
Risk is the potential for loss or uncertainty in an outcome, often arising from unpredictable events or decisions that could result in negative consequences.
In finance and investing, risk refers to the chance that an investment's actual return will differ from the expected return, potentially leading to financial loss.
Common types include market risk, credit risk, liquidity risk, and operational risk, each affecting different aspects of economic activities.
Higher risk is typically associated with the possibility of higher rewards, as seen in volatile stocks versus stable bonds.
Managing risk involves strategies like diversification, insurance, or hedging to mitigate potential downsides while pursuing opportunities.