GLOSSARY TERM
Downside Risk
Downside risk means the risk of losing money or earning less than you hoped for.
What does this mean in practice?
It focuses on the negative side of investing rather than just general price movement. Some investments may have strong upside potential, but they also carry a greater chance of deep losses or disappointing results. Downside risk helps you think about how bad outcomes could affect your plans.
Example
A stock-heavy portfolio may offer higher long-term growth, but over the next year it also has a bigger chance of falling sharply than a savings account or a short-term bond fund.
Why it matters
It helps you think not only about how much you could gain, but also about what could go wrong. This can lead to better decisions about diversification, asset allocation and how much risk really fits your situation.
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