Let's start this article by stating that the 13 ways of looking at risk described are in no way intended to be a comprehensive catalogue. I do hope to convey some of the nuances around risk, as well as to offer a framework for how investors can think about the various forms of risk in light of their own portfolios and plans.

At the same time, I don't mean to overcomplicate your investing life by suggesting that you need to take all of these measures into account. I would suggest instead that it's important to be aware of the range of possible risks and to pick and choose those that are appropriate to the specific goals, personal situation, and investment puzzle that you may be seeking to solve at any given moment in your investing lifetime.

One way to think broadly about this list of risk lenses is to distinguish between those that are backward-looking metrics, those that are forward-looking portfolio-based measures, and those focused on personal risk factors. The list progresses roughly in that direction:

1. Volatility

Volatility is one of the most commonly cited definitions of risk. It has the advantage of being easy to calculate and straightforward to understand and compare, but it also has limitations. One is that it makes no distinction between upside and downside volatility. Perhaps more significant is the question of how relevant volatility truly is to an investor. As Howard Marks of Oaktree Capital has written: "I don't think most investors fear volatility … What they fear is the possibility of permanent loss.” But volatility is still useful as an initial measure of a stock or fund's risk, and it can be usefully coordinated with an investor's risk tolerance.

2. Risk-adjusted return

Risk-adjusted return is a step up from simply ranking investments based on their return history. Commonly used measures include Sharpe ratio, information ratio, Jensen's alpha, and the Morningstar Rating for funds (colloquially, the "star rating"). Investment professionals often prefer risk-adjusted return measures because they show whether returns have been high enough to compensate for the risk. One weakness, however, of all these measures is that they are backward-looking, so you need to be cautious in applying them to future results.

3. Downside risk

Another way to think about risk is an investment's propensity to lose money; investors tend to be less concerned about volatility that works in their favour on the upside, and more about potential losses. Measures that capture this include downside-capture ratio, bear-market performance, and Morningstar Risk (a component of the star rating). A more sophisticated downside metric is value at risk, or VaR, which uses probability methods. It's typically used to estimate maximum potential losses but the model came under heavy criticism for its failures during the 2008 financial crisis.

4. Non-normal risk

One weakness of traditional risk measures is that they assume normal return distributions, which won't account for investments with non-normal return patterns (such as some alternative investments) or outlier events (so-called "black swans"). Indeed, one criticism of VaR models in 2008 was that they failed to account for the degree of losses in the mortgage market that eventually occurred. Measures such as skew and kurtosis provide an indication of an investment's likelihood of producing results outside the normal distribution of returns, or what is sometimes called "fat-tail risk”. But forecasting the chance of rare events is a tough enterprise. As Morningstar director of research Paul Kaplan has noted, market crashes have occurred more frequently than data would predict.

5. Valuation risk

The aforementioned measures of risk are all derived from investments' past performance. Valuation risk is more of a forward-looking risk. At its root, valuation risk means you may have paid more for an investment than its fundamental worth, and that its price will eventually fall to meet its fundamental value. It can also refer to broad markets inflated by excess exuberance (think the tech bubble in 1999 or real estate in 2006). Commonly cited valuation measures for equities include price/earnings ratio, price/book, or price/sales,.

6. Concentration risk

Concentration risk is an important consideration for both individual funds and your overall portfolio. Diversification is probably the most important tool for reducing risk. A concentrated fund that holds fewer stocks may be prone to greater risk of just a few holdings performing badly. At the same time, more concentrated funds may possess greater potential to outperform. Investors should be aware of allocating outsize amounts of their portfolio to any given manager, investment style, or sector and stay alert for concentrated holdings in individual stocks.

7. Credit risk

This is the first of two specifically fixed income related risks in this list. Credit risk comes into play any time you're investing in a corporate bond or other debt instruments backed by the credit of a company or entity. Credit risk is closely related to default risk, or the risk that a company may not be able to pay back its loans. Defaults can lead to permanent loss of capital, so funds that tend to invest in lower-rated securities require heightened attention and should likely occupy a smaller role in most investors' bond portfolios.

8. Interest-rate risk

Bond prices generally move inversely to the direction of interest rates and will lose value when interest rates rise. That means bonds or funds holding longer-term bonds are exposed to greater interest-rate risk. If you purchase individual bonds that line up with your investment horizon, short-term interest-rate fluctuations don't really matter, but when you invest in funds you will be more exposed. You should be aware of a bond fund's typical duration and how far it may deviate from its benchmark. With interest rates in a long-term downward trend over the past decade, longer duration has generally been a plus, but that won't always be the case.

9. Liquidity risk

Liquidity risk occurs when sellers have difficulty finding buyers in a thinly traded market, leading to unfavourable pricing. Some investment types, such as certain private investments, are inherently less liquid, whereas other investments may be quite liquid under normal circumstances but lose their liquidity in periods of market stress. While funds offer daily liquidity, managers have run into problems when less-liquid portfolio holdings have proved a mismatch for investor outflows, forcing them into a firesale of their assets in order to meet redemptions.

10. Systematic risk

Systematic risk is the risk investors bear simply for being in the market. It's unavoidable, but can be mitigated. Beta describes an investment's sensitivity to the market (a beta of 1.0 suggests that an investment's moves will match those of the market, while a beta of 0.8 would suggest a degree of magnitude 20 per cent lower). Factor exposures are another form of systematic risk, as they identify macroeconomic or fundamental factors that an investment may be exposed to, such as the momentum factor for equities or interest-rate sensitivity for bonds.

11. Risks for retirees

We’ll collate three separate types of risk here that are of particular relevance to those in or nearing retirement. Inflation risk (sometimes called purchasing power risk) is the risk that the growth of your investments will not keep up with inflation. Although inflation has been suppressed in recent years, that won't be the case forever. Longevity risk is the risk that you may outlive your assets. Sequence-of-return risk, meanwhile, is the risk that an untimely drop in the market will have an outsize effect on the future worth of your savings.

12. Correlation risk

Correlation can be thought of as diversification's arch-enemy: the risk that asset classes will act in tandem, particularly during periods of downside volatility. Keep in mind that correlations can change over time, and what was once an effective diversifier may find its correlation to other asset classes increase as investors direct flows toward it.

13. Risk of not meeting goals

This is perhaps the most important and all-encompassing risk that investors should be thinking about. From a goal-based planning perspective, the risk of not meeting a given goal (whether it is a house, college savings or retirement) is the most consequential. All the other risks mentioned previously are, in a sense, supporting players in the bigger production of meeting your goals.

Final thoughts

Let’s put this lengthy list into perspective, though. Risk isn’t something to be avoided altogether. A fundamental premise of investment theory is that to get returns beyond the risk-free rate, we must embrace some level of risk. Assessing which risks to take and calibrating them appropriately is the investor's challenge.

Many of the risks listed above overlap, while others may be irrelevant to the investment at hand. Cross-checking several different risk metrics and digging deeper into anything unexpected will get you most of the way to where you need to be.

And, finally, a longer time horizon is the cure for many of the risks listed. Riding out shorter-term volatility will give you a greater chance of succeeding at your biggest risk of not meeting your goals.