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Understanding Pandemic Risks
[By Julia O’Neal; MA, CPA]
Pervasive risks are those perils associated with all investments, such as purchasing power risk.
In other words, this is the risk that because of the influence of price inflation or deflation, the investment return achieved is worse or better than expected.
Another pervasive and hard-to-control risk is political risk. Typical political risks include the prohibition against exchanging domestic currency for foreign currency, failure to meet debt service, expropriation of assets, differences in taxes, and restriction on expatriating funds.
Conclusion
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Filed under: Investing | Tagged: Investing Basics |
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Some Investing Risks
Inflation Risk
The main risk from inflation is the danger that it will reduce your purchasing power and the returns from your investments. If your savings and investments are failing to outpace inflation, you might consider investing in growth-oriented alternatives such as stocks, stock mutual funds, variable annuities, or other vehicles.
Interest Rate Risk
Bonds and other fixed-income investments tend to be sensitive to changes in interest rates. When interest rates rise, the value of these investments falls. After all, why would someone pay full price for your bond at 2% when new bonds are being issued at 4%? Of course, the opposite is also true. When interest rates fall, existing bonds increase in value.
Economic Risk
When the economy experiences a downturn, the earnings capabilities of most firms are threatened. While some industries and companies adjust to downturns in the economy very well, others — particularly large industrial firms — take longer to react.
Market Risk
When a market experiences a downturn, it tends to pull down most of its securities with it. Afterward, the affected securities will recover at rates more closely related to their fundamental strength. Market risk affects almost all types of investments, including stocks, bonds, real estate, and others. Historically, long-term investing has been a way to minimize the effects of market risk.
Specific Risk
Events may occur that only affect a specific company or industry. For example, the death of a young company’s president may cause the value of the company’s stock to drop. It’s almost impossible to pinpoint all these influences, but diversifying your investments could help manage the effects of specific risks.
So, beware!
James
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