Invest At Your "Own Risks"! (Part 2)

When you know your risks, the fear of investing and losing money is lessen. In fact, your chances of making money will likely increase. Following my last article on knowing your risk profile, we should also be aware of the types of investment risks:

• Market Risk: Your carefully selected "can't be wrong" investment has actually gone down in value. Such is the case in stocks presently as market downturn could be driven by external event or events such as political instability, terrorism or war. However, most losses are sustained over the short term. As long as you hold onto a fundamentally sound investment, your investment will have the chance to recover and earn you a greater profit.

• Inflation Risk: The risk that the rising costs of inflation will outpace the growth of your investment over time.

• Company Risk: This is the risk that the individual company in which you invest fails to perform as expected.

• Maturity Risk: Also specific to bonds, this is the risk that the value of a bond may change from the time it is issued to when it matures. The longer the period to maturity, the greater the potential for price fluctuation. That is why long-term bonds generally offer a higher interest rate--to compensate for this greater risk.

• Legislative Risk: Government regulations can change. eg., Thailand recently imposed capital controls on their currency. This has severely affected foreign investments and the country's investing rating.
  

• Global Risk: It's always a bigger risk to invest overseas than at home due to possible unfamiliarity of the market condition. However, a purely domestic strategic can also backfire as every country will experience economic upturn and downturn. Your long term earning potential may be at risk if just restricted to local market.
  

• Timing Risk: If only you have the "crystal ball" to predict the future accurately but the fact is nobody has it! There is no such thing as timing "perfection". There is no single chart or tool that can predict 100% of the trend or patterns.
  

• Longevity Risk: This is the risk that you'll actually live longer than your income can support you!