Which type of risk is inherent in stock market investing?

Speculative risk refers to the chance of both loss and gain, which is a fundamental characteristic of stock market investing. In this context, investors purchase stocks with the expectation that their value will increase, allowing them to sell at a profit. However, there is always the potential for the stock's value to decline, leading to a financial loss. This dual nature of risk—where there can be both positive and negative outcomes—clearly aligns with the definition of speculative risk.

In contrast, physical risk pertains to tangible property and encompasses risks related to physical damage or loss, which is not relevant in the context of investing in stocks. Pure risk involves situations with only the potential for loss and no opportunity for gain, such as natural disasters or medical liabilities. Subjective risk is defined by individual perceptions and opinions regarding the likelihood of risk events occurring, which varies from person to person and does not reflect the statistical nature of stock market outcomes.

Thus, the characteristics of speculative risk most accurately describe the nature of risk involved in stock market investing, where one can expect both the chance of gain and the possibility of loss.