In the previous post I tried to shed the light on investment factors and talked about the risk related to it.This post is devoted to the risk its forms as an investment factor and different ways to handle it.
First of all here is a brief definition of investment risk : Investment risk can be defined as the probability of occurrence of losses relative to the outcome on any particular investment.
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A. RISK RELATED TO INTEREST
Fixated rate debt instrument declining as a result of interest risk rise, so if you assume that the interest risk will decline in the future u might go for avoiding long term maturity risk or make your bond holding shorter.Therefore the most important thing to do in these kind of situations is to learn how to anticipate the interest rate factors.
B. BUSINESS RISK
It s a measure of risk that is related to security it is called business risk or (unsystematic risk). This risk is essentially based on the fact of not being able to pay the interest in the case of bond by the issuer of a stock. So as a solution to this problem it is preferable to use diversification which means vying mutual funds
C. CREDIT RISK
It is related to the bond issuer, because he might not be able to make expected rate payment which could be a serious problem to the investor. Basically the higher the credit risk the higher the interest rate on the bond .
D. INFLATIONARY RISK
(Purchasing power risk), it is the risk related to income or assets decrease which shrinks the country's currency.That is to say that risk make the purchasing power of cash flow decline . So as a measure to be taken, the appropriate investment in this situation is convertible bonds or stocks considering their growth component that stay ahead of inflation.
Well, these were some kinds of risk that every investor should consider before starting their investment and be careful with it because it is the key to managing investment project in the best way by controlling the factors that influence its success rate .
I hope this could be helpful for everyone and give you an idea about how investment projects should be managed.
If you have any remark or add please comment bellow, to those who didn't check my other posts about investment, the links are bellow,
"Investing in steem as early as possible" : @simolab/2-invest-in-steem-today-before-tomorrow,
," Tips to start an investment" : @simolab/3-tips-to-start-an-investment
, "Investment factors": @simolab/4-investment-factors-learn-how-to-manage-it
and my introduction post: @simolab/hi-there-let-me-introduce-myself.
100% OWN WORK !!! , based on my management studies experience, except for the PICTURES !!! the source is bellow:
https://www.peakprosperity.com/insider/104020/cuff-repercussions-rising-rates
http://intuitive.solutions/blog/
https://www.dreamstime.com/royalty-free-stock-photo-credit-risk-image26762335
https://www.dreamstime.com/royalty-free-stock-photo-credit-risk-image26762335
http://www.metrac.org/email/enewsletter.31mar17.html?utm_source=enewsletter31mar17&utm_medium=email&utm_campaign=enewsletter