Understanding Investment Risk

If you are keen to start your very first investment then you are sure to have done a lot of research into which sector best suits you. But before you begin to invest your hard earned money, you might be interested in learning about all the different types of investment risks. One thing to get started is to pawn diamond ring for your initial capital.

These days you can invest in almost anything, from gold and silver on BullionVault to luxurious holiday homes. Each have their own risk and no investment is 100 per cent safe and is a guaranteed win. Many people make the mistake of thinking that to buy gold bullion is either “safe” or “risky.” However, it cannot be categorized so simply. There are several types and levels of risk you should know before you begin investing.

Market Risk: This means that your investment could lose its value in the market.

Interest Rate Risk: This means that you could lose value due to a change in interest rates. This only applies to fixed-income investments.

Reinvestment Risk: There is a risk that your investment will be reinvested at a lower rate of interest when it matures.

Political Risk: If there is political action in a country where you have placed your investment then you could lose value. Developing countries are particularly susceptible to this.

Liquidity Risk: This means that there is a risk that your investment will not be available for liquidation when it is needed. This mainly applies to fixed-income investments or real estate property which may not be able to be quickly sold at an equitable price.

Purchasing Power Risk: If there is inflation in the market then your investment could lose its purchasing power. This risk applies to fixed-income investments.

Tax Risk: This is the most common risk which applies to almost all investments. Tax risk means that your investment might lose its value due to taxation.