Risk is the measurable chance that something either loses or fails to gain in value. Every type of investment is accompanied by one or more...
Risk is the measurable chance that something either loses or fails to gain in value. Every type of investment is accompanied by one or more types of risk; diversifying a portfolio also diversifies the risk. Here are the most common types of risk:
• Market or principal risk: The chance that an investment will lose money.
• Interest-rate risk: The possibility that an investment yielding a fixed rate of return will lose value because of an increase in interest rates.
• Inflation risk: The chance that rising inflation will eat away at the value of income and/or assets.
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• Credit or default risk: The possibility that a borrower will not repay an obligation as promised.
• Exchange risk: The chance of a loss from fluctuations in foreign currency-exchange rates.