A dictionary defines risk as the possibility of loss or injury. But, like many things in life, risk is in the eye of the beholder. When it comes to investing, people tend to have different points of view about risk.
Many investors see risk as the possibility of loss of investment principal.
But investment managers, like the professionals who manage mutual funds, know that only those people who sell their investments when prices have dropped lose money. These managers view risk as a combination of technical measurements, such as standard deviation, beta, and alpha. They use these measurements as tools in their ongoing assessment and management of the risk in portfolios. In other words, mutual fund managers see risk not as loss but as fluctuation in the value of investments. Risk is part of life.