Investment risks are not all visible

Investors need to take risks to achieve returns, but do you really understand what risk means? Dr Benjamin Holdsworth shows how risk is connected to your long-term objectives.

Investors know that equity markets can be risky. The trouble is that ‘risky’ means different things to different people.

William Bernstein – a neurosurgeon-turned-adviser and prolific investment writer – wrote a great, short booklet on risk, where he explained the different risks that equity investors face, as follows:

‘Risk, then, comes in two flavours: “shallow risk”, a loss of real capital that recovers relatively quickly, say, within several years; and “deep risk”, a permanent loss of real capital.’

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