Market risk stems from the variability of returns in equity markets. As the old adage goes, “investments can go down as well as up”. This type of risk affects some investments or asset classes more than others. For instance, cash has very low volatility, as the main moving variable is interest rates and they don’t tend to move too much, too quickly, although banks do go bust from time to time.

Investments in gold mining shares on the other hand are very volatile, which historically have produced large gains and, of course, large losses.

Risk can also be interpreted in another way – that of not reaching your financial goal, or shortfall risk as it’s known. For instance, if you are in your 20s and saving for retirement, there is the risk of not having enough money to retire on. This could come about by not saving enough, or investing in the wrong asset mix. In this instance, investing in cash, rather than equities, would increase your shortfall risk.

This represents the possibility of outliving one’s financial assets due to a severe drop in the value of the portfolio or living longer than expected. Lifetime-payout annuities are a way to potentially insure against this type of risk.

This risk refers to the chance that new or changed governments pursue different fiscal and monetary policy that may impact economic output. Governments may also pursue protectionist or isolationist policies that can also negatively impact financial markets or certain industries