In asset management, what is meant by "risk"?

In asset management, "risk" specifically refers to the potential for an investor to lose some or all of their original investment. This encompasses various factors that can lead to negative performance outcomes, including market volatility, economic changes, and specific variables pertaining to a particular asset. Investors assess risk to understand the likelihood of experiencing losses and to make informed decisions that align with their investment goals and risk tolerance.

While the guaranteed return on an investment is irrelevant when discussing risk, since risk inherently involves uncertainty, tax implications and the time it takes for an investment to mature are also separate considerations. Tax implications can affect the net return of an investment but do not directly represent risk. Similarly, the maturation period of an investment can influence liquidity and cash flow but does not define the risk associated with the investment itself. Thus, understanding risk in portfolio management is crucial for creating a balanced investment strategy that aims to maximize returns while minimizing potential losses.