As an English native, your sentence doesn't sound wrong to me, but it doesn't seem like the right way to express this sentence. Your sentence makes it sound like the water is cold in the lake is a temporary thing, as in the water is cold while in the lake. Also, in your sentence cold is only describing [the water]. You would want to say The water in the lake is cold, as cold is describing [the water in the lake], not just [the water]
Thank you for your comment! The order of the words in the Swedish sentence sounds natural in Swedish spoken language. Or is it? Can someone native Swedish give a comment? And similarly, I was typing the order of the words in the English sentence as it would sound normal for me.
That's actually un-intended... we accept "The lake('s) water is cold", so Duolingo thinks the missing hyphen from "lake-water" is just a typo and accepts it. Generally speaking, Swedish loves compound nouns, so "the lake-water" would be sjövattnet. Since compound nouns are such a huge part of Swedish, we try to keep the constructions separated for the most part.