7 Investment Risks – Do You Know What You Risks You Are Taking?

Here is a list of the main types of investment risk, along with a description of the risk. By using this information you can be better informed about some of the risks involved when you invest your hard earned money. Some of them may surprise you and you may never even have considered them a risk.

The types of investment risks are:

Inflation Risk

? This would expose you to the risk that the spending power of an asset will be eroded by inflation over time, with inflation being on everybody’s mind at the minute its a very important factor not to omit from your planning.

Interest Rate Risk

? The risk that interest rates will fluctuate, its important to think beyond the current rates on offer and get a feel for how you expect rates to change over the period of your investment.

Shortfall Risk

? The risk that investments may not achieve their anticipated returns, remembering that investments can fall in value too. You could think about how you would manage if there was a shortfall.

Market/Systematic Risk

? The risk that the value of the stock market may fall, as mentioned above but here you might like to think of leaving the investment to overcome the shortfall and this can work well if you have time on your side.

Provider Risk

? The risk that the provider may not be able to pay back the money invested, something that was not really considered in too much detail a few years ago. But, with recent events this is very much on people’s minds, so have a look out for financial strength and feel comfortable about the provider.

Taxation Risk

? The risk that the Government may alter taxation legislation thereby having a detrimental effect on your assets. Increased taxation or the loss of tax breaks could adversely affect your returns, most are out of your control but make the most of any tax breaks while you can to take advantage and improve your returns.

Diversification Risk

? The risk that too much is held in one asset or asset class. A very important part of investment planning, don’t have all your eggs in the one basket, spread your risk.

Of course discussing these with a qualified adviser can help you understand them further, and then you can be in an informed position before you go ahead and consider taking risk.

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