What Types of Risk Are Involved With Investing?
What Types of Risk Are Involved With Investing?
To name a few: Liquidity, Reinvestment, Inflation, Market, Credit, Exchange rate, Interest Rate, not taking enough risk and outliving your money, not saving enough and outliving your money.
Liquidity Risk is the possibility of not being able to sell the investment for cash quickly enough without impacting the price of the investment.
Reinvestment Risk is the possibility of not being able to use the proceeds from the sale of one investment to purchase another investment at the same or higher rate of return.
Inflation Risk is the possibility that cash flows (dividends or interest) won’t be worth as much in the future because of inflation.
Market Risk is the possibility of loss in value of your investments due to the movement of values in the market (stock market, bond market, real estate market, etc.).
Credit Risk is the possibility that a lender (sometimes a bond issuer) may not repay a loan or a bond’s principal or interest.
Exchange Rate Risk is the possibility of the value of an investment changing due to the changes in the exchange rates of currencies in which your investment is denominated.
Interest Rate Risk is the possibility that changes in interest rates may reduce the value of the bond you own.
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