What does risk averse mean in finance?

The term risk averse refers to the preference for avoiding risk. In finance, risk is usually associated with losses. If you are risk averse, you might be more likely to invest in bonds—which have lower returns but lower volatility—than stocks, which have a higher potential to make you a lot of money, but also a higher chance of going down significantly.

What does risk aversion mean in finance?

A risk averse investor is someone who prefers lower returns with reduced risk over higher returns with greater risk. It implies that the investor is willing to accept a lower growth rate for a lower level of risk. In other words, the investor is willing to trade off higher returns for a lower risk level.

What does risk averse mean in the stock market?

If someone is risk-averse, they are likely to sell stocks when the market drops, and invest in bonds when the market increases. In other words, they are not willing to risk a loss for a potential gain, and are more interested in guaranteed returns than potential profits.

What does risk aversion mean in investing?

You’re risk averse if you’re shy or anxious about investing in the stock market. You prefer to put your money in bonds or mutual funds with lower volatility, which are safer options that are less likely to drop in price. For example, if you’re trying to save money for retirement, you might consider a guaranteed investment certificate (GIC) from your bank or a mutual fund that invests in stable stocks and bonds.

What do risk averse mean in investing?

The term “risk averse” is used to describe people who are more likely to stay with a safe investment than try a risky one. The opposite is “risk-seeking.” Someone who is risk averse is unlikely to sign up for a high-return investment that may lose a lot of money, or take on a lower return on a guaranteed investment that is unlikely to grow at all.