What is the primary risk associated with investing in stocks?

The primary risk associated with investing in stocks is market risk. This risk refers to the possibility that the value of an investment will decrease due to changes in market conditions. When investing in stocks, the overall performance of the stock market can significantly affect the value of individual stocks, regardless of the company's financial health or performance. Factors such as economic recessions, political instability, and changes in interest rates can all lead to market fluctuations, impacting stock prices.

Market risk encompasses both systematic risks, which affect the entire market or a large segment of it and cannot be diversified away, and unsystematic risks, which are specific to a particular company or industry. Investors need to be aware of this risk because, unlike other forms of investment risk, such as credit risk associated with bonds, which relates to the likelihood of a borrower defaulting, market risk is inherent in the nature of investing in stocks. Understanding and managing market risk is crucial for investors aiming for long-term growth in their portfolios.