What Is Risk Averse?
Risk aversion is the tendency to avoid risk. The term risk-averse describes an investor who chooses the preservation of capital over the potential for a higher-than-average return. In investing, risk equals price volatility. A volatile investment can make you rich or devour your savings. A conservative investment will grow slowly and steadily over time.
Low risk means more stability. A low-risk investment guarantees a reasonable if unspectacular return, with a near-zero chance that any of the original investment will be lost. Generally, the return on a low-risk investment will match, or slightly exceed, the level of inflation over time. A high-risk investment may gain or lose a bundle of money.
Risk averse can be contrasted with risk seeking
Risk-averse investors tend to favor capital preservation over capital gains and seek out more conservative investments than more risk-seeking individuals. Such investments may include savings products, CDs, highly-rated bonds, and blue-chip stocks. Being risk averse reduces one's chance of experiencing losses, but also comes with opportunity costs, missing out on good opportunities and sacrificing greater expected returns earned elsewhere.
