principal risk(redirected from Principal Risks)
The risk that an investment will decline in value below the amount one invested. For example, if one buys a security for $10 per share, there is a principal risk that it will decline to $8 per share and never recover. Principal risk is virtually non-existent for bank accounts, which are guaranteed by the FDIC up to a certain amount. However, it is significant for investments like stocks and, to a lesser extent, bonds.
The possibility an investment will be worth less when it is sold than when it was purchased. Principal risk is high for common stocks compared to most fixed-income investments such as bonds, preferred stock, and certificates of deposit.