Every investment has risk.
Money market funds and CDs have risk. Stocks, bonds, options, commodities, futures and mutual funds have risk. Keeping cash in your mattress has risk.

Types of Risk:

• Exchange risk: The risk you take when you buy or sell foreign investments or currency. If you spend $100 to buy 80 Euros and the exchange rate goes from 80 to 85, you lose money because you can’t exchange your 80 Euros for the $100 you bought them for.
• Inflation risk: This risk represents the chance that the value of your assets or income will be eroded. As prices rise, a dollar buys less. If your money is earning 1 percent in a savings account and inflation is averaging 3 percent, you are losing purchasing power. This risk is very insidious. You won’t even notice it over a short period of time. You need about four times more income now than 25 years ago to pay for the same expenses of living. Many elderly people on the Monterey Peninsula are victims of inflation. Their income is no longer adequate to meet their expenses.
• Interest rate risk: Fixed-rate instruments such as bonds decline in value as interest rates rise. The longer the duration of the bond, the greater the decline.
• Liquidity risk: You may have a commodity or security you want to sell, which your broker tells you is “thinly traded.” There is a market for the stock, but very few buyers. You can’t sell it anywhere near the price you think it is worth. You are experiencing liquidity risk.
• Political risk: You own stocks or bonds in a foreign corporation and the foreign government nationalizes or otherwise takes over the company. You could be out of luck.
• Credit risk: You lend money to someone (or buy a municipal or corporate bond), and they can’t pay you back. For example, 14 years ago you got the great idea that if all your income was from California municipal bonds, you’d pay no income tax. So you bought Orange County Municipal Bonds. You soon discovered credit risk.
• Company risk: You own Intel stock. The top three computer manufacturers announce they will start using a new, faster AMD processor instead of the Intel processor. The Intel stock price drops precipitously. You have experienced company risk.
• Economic risk: The Federal Reserve Board overestimates the threat of inflation and the rate of growth in the economy. They overreact and raise interest rates more then they needed to. The economy dips into a recession and company earnings head south. Your stocks follow. That’s economic risk.
• Market risk: You buy 1000 shares of your favorite stock. The next day, the brightest and most overpaid investment analyst on Wall Street declares that the stock is overpriced. He gives a strong sell recommendation. The stock price drops and you are now an experienced survivor of market risk.