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Chapter 10. Everything You Need to Know ... > What Is “Risk”? - Pg. 105

Everything You Need to Know About Investing Your 401(k) Money 105 · Business risk--The risk that an industry or a particular company does poorly, and therefore your investment in that industry or company does poorly. (Murphy's Law: The day after you buy stock in a company, they file for bankruptcy.) · Credit risk--The risk that a borrower can't pay back the interest or principal they owe you. (Mur- phy's Law: Maybe IOU, but U ain't getting paid.) · Liquidity risk--The risk that you won't be able to sell your investment quickly at the price you would like to get for it. (Murphy's Law: The day after buying that once-in-a-lifetime deal, a "real" once-in-a-lifetime deal comes along.) So how do you cope with risk? In Chapter 14, we'll show you how to build an investment mix that's right for you. The Least You Need to Know · You need to know your target rate of return before you go shopping for 401(k) investments ... without it you'll be lost. · Pretty much all 401(k) investments fall into one of three categories: safety, income, and growth. These are known as investment objectives. · Knowing what a stock, bond, and cash equivalent are is the very least you should know. · Your financial goals, how far you are away from those goals, your investor profile, and the rate of return you need on your investments determine which 401(k) investments are right for you.