Understanding Risk in the Market

There are different types of risk that you will have to account for no matter what you are doing with your money. If you are into stock, real estate, or just keeping your money in the bank there are risks involved with all of them. You should know these risks and understand them. Then you should rate your risk tolerance to know where you should keep your money.

The first type of risk we will talk about is the risk in the market. Most investors run the risk that the price they paid for a security might sell lower to another investor at a later time. The company that you invest in could also file bankruptcy. This could be a huge problem, depending on what kind of bankruptcy they file for. Some are better than others. If this does happen though, you run the risk of losing all of your money in that stock.

The best type of risk is the risk of inflation. This is where the price of goods and services can go up in a short period of time. You will need to keep a tab on what is going on in the market. Your monthly account statements most likely don’t have anything on their about inflation. Even if you keep your money in the bank and inflation goes through the roof, the value of that money has now lowered due to higher costs. Be careful.

The last risk is default risk. This type of risk is where investors in the bonds you have invested in could learn that the country, government, or agency they loaned the money to is not going to be able to make the interest payment due. Risky bonds will usually pay more in return for your investment, but you could lose it all if it falls flat on its face. There are other bonds with less risk that you can invest in. Just look for these and consult with a professional before investing in the market.

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