Risk is the chance of an unfavorable outcome. In investments, it is the chance of losing money either in your overall investments, or in one or more of your investment choices. In general, assets that have a greater chance of losing money, also have more volatile prices. So one of the ways that a higher risk level will be apparent to you is a higher degree of volatility in the value of your wealth. A convenient way to gauge the risk level of your investments is to monitor your performance. If during good times, your investments are performing particularly well, there is a good chance that bad times will produce a large decline in the value of your investments. It is a good idea to review your willingness to tolerate risk, as your personal circumstances change, and as the market changes. In general, in strong markets you should reduce the risk of your investments and in weak markets you should accept a higher level of risk and modify your portfolio accordingly.

Higher risk is often associated with higher growth. If a company grows at a higher-than-average rate, it is likely to be smaller, younger or less well diversified in its product line. It may be more vulnerable to competition, or to a change in market or economic conditions. That is why it is very important to employ GEARS tools to monitor the performance of the company to spot any early signs that problems or opportunities are developing.

Your risk preferences may be more closely related to your investment philosophy with your return goal deriving from that--or more related to your return goal with your investment philosophy derived from that.

For instance, if as a matter of personal preference, you wish to avoid high risk, then your return goal must be low and your investment strategy can be conservative and require a small amount of your time to implement. If your return goal is high, then the only way to achieve it is to accept a higher level of risk in your portfolio of investments and dedicate a larger amount of time to their management.

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