Conservative investors have been frustrated in recent years because low interest rates have left guaranteed instruments yielding virtually nothing. And while rates will undoubtedly rise again at some point, guaranteed instruments will never outpace inflation.
There are several types and levels of risk that a given investment can have
Market Risk: The risk that an investment can lose its value in the market (applies primarily to equities and secondarily to fixed-income investments)
Interest Rate Risk:The risk that an investment will lose value due to a change in interest rates (applies to fixed-income investments)
Reinvestment Risk: The risk that an investment will be reinvested at a lower rate of interest when it matures (applies to fixed-income investments)
Political Risk: The risk that a foreign investment will lose value because of political action in that country (holdings located in developing countries are particularly susceptible to this)
Legislative Risk: The risk that an investment will lose value or other advantages that it offers because of new legislation (all investments are subject to this risk)
Liquidity Risk: The risk that an investment will not be available for liquidation when it is needed (applies to fixed-income investments and real estate and other property that may not be able to be quickly sold at an equitable price.
Purchasing Power Risk: The risk that an investment will lose its purchasing power due to inflation (applies to fixed-income investments)
Tax Risk: The risk that an investment will lose its value or return on capital because of taxation (most investments are subject to this risk)
Fixed income investments, such as bonds and CDs, are typically subject to interest rate, reinvestment, purchasing power, and liquidity risk, while stocks and other equity-based investments are more vulnerable to market risk. And while a few investments, such as municipal bonds and annuities, are at least partially shielded from tax risk, no investment is safe from political or legislative risk.
Of course, the specific types of risk that apply to an investment will vary according to its specific characteristics; for example, investments that are housed inside a Roth IRA are effectively shielded from taxation regardless of all other factors. The level of risk that a given security carries will also vary according to its type, as a small-cap stock in the technology sector will obviously have a great deal more market risk than a preferred stock or utility offering.