Investing and Risk

Written by Posted On Sunday, 21 February 2021 00:00

"He who will not risk, cannot win."
- John Paul Jones

Different Types of Risk

• Business Risk - a result of the nature of the business itself.
• Financial Risk - Borrowing to invest, leverage or the lack of it.
• Market Risk - Prices of like assets move up and down in value together.
• Interest Rate Risk - On income oriented investments. Inverse.
• You cannot diversify around it but you can vary lengths of maturity.
• Credit Risk - The creditworthiness or ability of an issuer or debtor to pay its financial obligations. Important consideration for investors when purchasing bonds. A change in the credit rating of the debtor will result in a change in value of the security itself.
• Purchasing Power Risk - Inflation. What will those dollars buy you 10, 20, or 30 years in the future. Dilution of the currency. When the "money supply" increases, inflation increases.

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