Financially-risky
Describing an action, investment, or situation that has a significant probability of resulting in a loss of money or other financial resources. This risk may stem from various factors, including market volatility, unpredictable economic conditions, the creditworthiness of borrowers, or the nature of the investment itself. The assessment of financial risk involves evaluating the likelihood and potential severity of financial losses, considering factors like leverage, diversification, and the time horizon involved. A 'financially-risky' endeavor requires careful consideration of potential downsides and often necessitates a higher potential return to compensate for the increased level of danger.
Financially-risky meaning with examples
- Investing heavily in a single, unproven tech startup is a financially-risky proposition, as the company may fail to secure funding or meet its milestones. The potential reward might be high if the company succeeds, but the chance of complete loss is also substantial. Diversifying investments across various sectors can mitigate this type of risk.
- Taking on excessive debt to fund a lavish lifestyle is a financially-risky behavior. If unforeseen circumstances like job loss or medical emergencies arise, repaying the loans becomes extremely difficult. This often leads to further debt accumulation, potential bankruptcy and significant financial distress.
- Launching a new business venture without thorough market research or a robust business plan is inherently financially-risky. Without a clear understanding of the target market and the competitive landscape, the business may struggle to generate sufficient revenue. Comprehensive planning minimizes these risks.
- Purchasing options on highly volatile assets like certain cryptocurrencies is a financially-risky strategy. The rapid price fluctuations can lead to significant gains or substantial losses in a short period of time. Prudent investors understand and actively manage this volatility.
