Back to Blogs

Common Investment Risks Explained

June 14, 2017

Common Investment Risks Explained

Most types of high yield investments come with a variety of risks. Thus, it’s crucial that you familiarise with the common, if not all, types of risks that exist.

investment

Image Source

The following are some of the common risks linked to investments:

Inflationary Risk

Inflationary risk, which is also known as purchasing power risk, refers to the possibility that your purchased assets may lose value over time as the value of your country’s currency reduces. In other words, selling an asset after many years, such as a car may get you even less money than what you paid for today due to inflation.

To minimise the inflationary risk, it’s better to choose appreciable investment such as convertible bonds or stocks.

Market Risk

You may remember this from the copy for a mutual fund scheme. A market risk is highly unpredictable and based on factors that are usually not within the investor’s control. Examples include natural disasters, changes in interest rates, etc.

Exchange Rate Risk

Exchange rate or currency risk is a risk emerging from the change in the price of one currency against another. So, if your money must be converted into a different currency before making an investment and it’s not as powerful as it used to be in comparison to other currencies, then you won’t get the same value as you originally paid for.

Liquidity Risk

Liquidity risk is the difficulty in converting an investment into money. For instance, say you bought a house for a certain amount, and in a few years the market has gone down, but you need money for other investments. So, you may need to take a loss by selling the property at a low price. Another example is the investments with lock-in periods.

Important Links:
Tags:
Finance

Recommended for you ...

5 reasons why Business English is important for your career
5 reasons why Business English is important for your career

March 28, 2024

Start your Banking Career after Graduation
Start your Banking Career after Graduation

March 20, 2024

What is CBS? Why do the Banks Need it?
What is CBS? Why do the Banks Need it?

March 12, 2024

Chat on WhatsApp