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Chapter 10. Everything You Need to Know ... > What Is “Risk”? - Pg. 104

Everything You Need to Know About Investing Your 401(k) Money 104 For What It's Worth Confusing "risk," the likelihood of losing money in an investment, with "volatility," the tendency for a stock investment to go up or down in value, is a common ailment. If you're investing long-term, expect fluctuations in your portfolio. It's perfectly natural. How you react to these ups and downs says a lot about you as an investor. Be careful about reacting emotionally to volatility. It could cause you to do something foolish with your money ... like turning a loss on paper into a loss in your wallet. Now there's a risk! Inflation risk (long-term risk) is the possibility that your money won't buy anything when you go to spend it. Inflation risk can reduce or eliminate the buying power of your investments and is most devastating over long periods of time. As the prices of goods and services increase every year, the purchasing power of your investments is reduced by inflation. Investments that pay a moderate return, but guarantee your principal, generally have low short-term risk (the risk of losing your money) and high long-term risk (the risk of not having enough money when you retire). Even though your principal is secure, inflation could significantly decrease the future value of your investment.