Types of Risk
Eleven different risks commonly identified in investment markets
- Market or Systemic Risk - Impossible to avoid if you are invested at all and difficult to diversify. It is the risk that the whole market wont perform to expectations.
- Specific or Business Risk - The risk relating to a specific business or investment asset. Easily diversified by investing in a number of different businesses and or assets.
- Market Sector Risk - Relates to a particular sector of the market such as fixed interest or shares. Can be reduced by diversifying investments across different sectors.
- Financial Risk - The risk of the loss of funds due to the investment failing.
- Economic Risk - Risks associated with macro-economic factors such as inflation or Government monetary policy.
- Inflation Risk - The risk that the real value of your investment will fall if you don't earn at least as much as the inflation rate.
- Political Risk - The risk that changes to Government Policy may occur. May be due to a change in Government or a change in policy.
- Liquidity Risk - The risk that you may not be able to sell your investment when you want to sell it without accepting a price considerably less than "market".
- Timing Risk - The risk that you may by or sell assets at the wrong time. Inadvertently buying high and/or sell low.
- Opportunity Risk - The risk that you are unable to take advantage of a better return in a different investment.
- Information Risk - The risk that information about an investment is incorrect or that others have access to information before you.
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