How is "investment risk" defined?

The definition of "investment risk" is primarily characterized by the chance of losing money on an investment. This encompasses the uncertainty associated with the potential for an investment's return to differ from its expected outcome. Investment risk is inherent in all types of investments, whether they are stocks, bonds, real estate, or other assets.

Understanding this risk helps investors make informed decisions by considering the potential for both gains and losses. Higher potential returns typically come with higher risks, making it essential for investors to assess their risk tolerance and investment goals. This perspective is vital for effective financial planning and portfolio management, as it influences how investors allocate their assets and manage their investment strategies.

Other choices reference concepts that do not align directly with the definition of investment risk. A guarantee of a fixed return focuses on the opposite of risk, which suggests certainty rather than uncertainty. The ability to diversify portfolios pertains to strategies used to manage risk but is not a definition of risk itself. The overall performance of the stock market is more about market trends than the specific risk tied to individual investments. Therefore, the correct understanding of investment risk revolves around the possibility of loss associated with investments, as highlighted in the chosen option.