Identification

• The greater the investment risk, the more chance there is for losses but also there is a larger possibility of enhanced returns or profits. Investing for a particular purpose, such as for education or retirement, usually requires some level of risk in order to achieve desired results. Otherwise, money that does not gain substantial interest will not keep up with inflation.
  
  

Types

• Bonds are considered the least risky investments because they promise a payout at the maturity date of the contract in addition to incremental dividend or reward payouts. Stocks are considered more risky investments since there is no guarantee that these securities will generate a profit. There are some dividend-paying stocks, however.
  
  

Considerations

• One way to avoid excessive risk in the stock market is to ensure proper diversification in a portfolio. According to Motley Fool, diversifying investments reduces risks. Investing in multiple security types, including domestic and international stocks and bonds, adds to diversification.