Top 7 Financial Investment Risks

Be reminded that there are still lots of financial risks than you ever know, some are far more complicated that others. Stated here are the most common and collective risks each and every one of us run into. Still, there are lots of nitty-gritty about determining risks. All you need is to soul-search about your risk tolerance and act accordingly.

Remember, numbers don’t lie. It will either make you or break you. But we’ll make it work for you by first knowing handfuls of risk you might step into while vying your way toward financial freedom, independence, affluence yadah yadah!

Source: Freepik

Stock Specific Risk

Particularly for stock traders, if you happened to put all your money into just one stock and the industry where it belonged turned turtle, your chance of getting wiped is almost certain. But a well-diversified portfolio can juggle between dips and steeps of the market. In fact, while your other investment is dipping, the other that’s performing well can abate the loss of the former. That sort of complements the loss of the other or vice versa.

Passivity and Inflation Rate Risk

Most of us think relatively safe about our investments, so we tend to stash our cash into the banks. It’s safe, no problem. But if you think investment-wise, no it’s not. Your money has presumed power to purchase, problem is, it loses its power overtime. Mainly, because of one thing – inflation! Your money won’t be able to cope up with inflation when it’s out cold in the bank. Remember that inflation is getting doubled each year, while your savings account interest rates don’t even do a single dent into the ever-growing fangs of inflation.

You’d be far off betting your money into mutual funds or bonds. But still, this form of investments doesn’t have much thicker shell to guard you from the gnawing tooth of inflation. For the best start on beating inflation would be stocks. Stocks will be riskier than any other investment medium, but return outweighs the risk if you just spend a little more time on it.

Market Risk

Simply an overall risk of the local or global market. This is a general risk that your money will encounter whether you’re into bondsmutual fundsREITF or stocks. These instruments are just passengers in one global boat of economy. So, when the economy rocks sideways so goes your investments with it.
You can either keep your money with you or in the bank – either way you still do risk yourself of not being able to exploit and benefit from the market heydays, particularly the stock market.

Source: Freepik

Credit Risk

This risk is commonly associate with bonds investments. Businesses, governments, municipalities can issue bonds. Good thing about government issuing bonds it’s relatively solid economy which obviously won’t go down easy. Bonds issued by private corporations however is a bit into hot waters since businesses can close altogether in whatever reasons.

Bonds are issued with the promise of fixed return in the coming years or even bi-annual returns. In short, bonds are credit or loans from investors. This is different from a company barrowing money from the bank instead.

Currency Risk

This pertains to inter-currency risk as some currency dips in value with some apparent reasons such as socio-political instability cause by terrorism, war, political assassination and all. You are at risk if you have overseas currency investments that relies on exchanges such as Forex or Foreign Exchange. For one, Forex traders know this in mind and in heart.

Interest Rate Risk

Inflation is the worse enemy of bonds and stocks and whatever investment instrument there is because it tends to dampen the value of your money. In bonds for example, if bond interest rates rise, the price of the bonds falls at the same time and vice versa. However, the longer the maturity period of the bond the longer the impact of the rate takes effect. Fortunately, long-term bonds normally pay-out higher returns compensating for the loss of the interest rates.

Economic Risk

Economic health is particularly relevant to long-term stock traders, more in particular position traders or investors. Economic condition is part of the salad bowl of a fundamental analyst who tend to invest in the market for a long time. Long term uptrend of the market tends to use economic springboard in the long run as opposed to short-term trades.

But at times when the economic Achilles Heel is hit, everything tends to spiral down it doesn’t matter if you are into the banks, stocks, bonds, REITF or mutual funds your investment will be dancing with the tides of the economy.

Source: Freepik

Bonus:

Personal Risk

Perhaps, the greatest risk of all is not risking at all. Do you know that life in itself is already a risk. One philosopher said, “the moment you start living is moment you start dying.” You are not safe by staying on the safe side. Financially, your investments, if you like it safe can at most only be relatively safe. Banks feeds your dearly investments to inflation eventually losing purchasing power. In stocks however, the tides seem a little troublesome, but returns on high seas outweighs the turbulence.

As always, educate yourself before going into any form of investments. If you fail, educated yourself again to the point where you have messed-up. If you are so serious with it, make financial literacy become part of every fiber of your being. Let it be your second nature, till it becomes you eventually.

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