Investment risk is one of the important weapons used against some of the young entrepreneurs and discourages their interest in doing more. Like Richard will always say; if you must be unprecedented in your success then Risk must be one of your strategies. There are majorly 8 kinds of investment risk and they are:
MARKET RISK
This kind of risk has to do with the decline of the value because of economic developments as well as expansion or other events that affect the entire market. This is one of the major risks that scare investors around in terms of making a proper and adequate investment, when and where necessary. In this aspect of risk, the investment is affected due to economic breakdown or expansion, etc. in this market risk, there are however three major kind of market risk and they are;
- Equity risk: this basically has to do with shares. The market price varies all the time of which this becomes dependent on the demand and supply rate.
- Interest rate risk: this applies to debt investments which can also be referred to as bonds. This has to do with the fear of losing money due to the change in interest rate. For example in accordance with the economic scale, the higher the interest rate, the lower the market value of bonds.
- Currency Risk: this has to do with the fear of losing much money due to the fact of losing money in the exchange rate of the world currencies, for instance when the dollars drops, it affects foreign investments. It is worthy to note that this investment risk is majorly for that of the foreign investors, thus; if you have nothing to do with the foreign land, you do not need to bother yourself over that.
LIQUIDITY RISK
This is another more important risk that people that make investment needs to put into serious considerations due to the fact that it deals with the inability of people (one who makes an investment) not been able to sell their investment at the expected price rate. Most times at this point, to sell the investment, you could have to bring down the price to ensure you are been patronized.
CONCENTRATION RISK
This has to do with an investment that involves the investment in a single business and the fear of the business getting collapsed and you run into a huge loss.
CREDIT RISK:
This kind of risk involves the government entity or company that issued bonds running into financial difficulties as well as challenges and will not be able to pay the interest. It can also be applied to debt investment such as a bond.
REINVESTMENT RISK
This is a risk that has to do with the fear one the loss of the finance due to the investor reinvesting in a particular business at a lower income.
INFLATION RISK
This involves a risk of one losing a purchase of power due to the value of his or her investments that do not keep up with the inflation.
LONGEVITY RISK
This in particular has to do with the fear of the investment not standing the test of time and this has to do with the retirement age of a particular person that invests.
FOREIGN INVESTMENT RISK
This is the fear of losing all your investment when investing in a country that is not your resident country or that of your motherland.
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