The Risks of Investment

The Risks of Investment
No investment goes without risk. In fact, the two go hand in hand. Risk is the possibility of loss to an investment. With all investments there are risks.
There is no guarantee that you will receive all if any, of your maximum possible return. Fortunately there are varying degrees of risk in different
Investments and understanding these risks give one better chances are being able to mitigate their effects. The simplest risk is the loss of principle,
which is the original money invested. When buying stocks, mutual funds, even real estate there is no guarantee that all of the principle will be
regained. However, there are ways to avoid this risk. Putting money into a savings account is a surefire way to ensure the return of a principle
investment. Buying fixed term deposits, and investment grade surety bonds are also ways of ensuring the return of a principle investment. Market risk
is another type of risk to potential investors. This risk is the risk one takes when investing in a particular market, i.e. the United States Market. The idea
of market risk is based on the fact that if the an market will fall. When that happens all investments in that particular market will begin to slide, much
like what is happening today in the US market. To lessen the effects of market risk, the best idea is to diversify investments into many different
markets. This way, if one market fails, there are a few other to back up one’s investments. Of course investing in foreign market introduces
new risks such as currency risk, but the effects of these new risks are significantly lowered because of the investments are diversified. Inflation is
another type of risk to potential investors. Inflation risk involves the risk that the money of an investment will hold less value than it currently does. This
risk has the biggest effect on people who do not invest their money and instead leave it in a savings account gaining a small percentage each year. If
the money is invested in the stock market, as inflation grows so will the money invested. Unfortunately, inflation is a risk that never goes away. These
three are just a few basic risks to investments, there are many more. Risks like political risk, liquidity risk, reinvestment risk, manager risk, opportunity
risk, concentration risk, the list goes on. There are many risks out there, too many to list, but understanding these risks and playing the market right
can help diminish the effects of such risks.