What are the two main types of risk mentioned in personal finance?

The correct identification of the two main types of risk in personal finance is often centered around market risk and credit risk. Market risk refers to the potential for losses due to fluctuations in market prices, while credit risk deals with the possibility of a borrower defaulting on a loan or obligation.

Peril and hazard, while they do refer to risks in an insurance context, specifically relate to property and casualty insurance rather than the broader scope of personal finance. Peril refers to the cause of loss, such as fire or theft, while hazard denotes conditions that increase the likelihood of that loss occurring, which is not the focus within the personal finance domain.

Recognizing the primary types of risk is vital for effective financial planning and investment decision-making, and understanding market and credit risks helps individuals manage their portfolios and make informed choices accordingly.