What are the three main types of investment risks?

The correct selection highlights the three primary forms of investment risks that are critical for investors to understand: market risk, credit risk, and liquidity risk.

Market risk encompasses the potential for investments to lose value due to market fluctuations, affecting all securities within the market. It's a broad category that represents the risk of loss due to changes in market conditions.

Credit risk refers to the possibility that a counterparty will fail to meet its obligations, particularly in bond or debt investments. This risk is particularly important for investors in fixed-income securities, as the creditworthiness of the issuer can directly affect the performance of the investment.

Liquidity risk involves the potential difficulty of selling an asset quickly at a fair price. This is particularly pertinent for assets that are not traded regularly or have a smaller market, where sellers may need to accept a lower price or face delays in selling.

Understanding these three types of risks is vital for making informed investment decisions, as each can significantly impact the overall performance of an investment portfolio. The accurate recognition of risks helps in developing strategies to mitigate them, aiding in the preservation and growth of capital.