All investment comes with some degree of risk. Ever-changing market conditions, new technological developments, and improvements in industries all shape the value and demand of investments. It is important to understand that accepting a small degree of risk is necessary to allow your wealth to grow while it is invested. There are several types of risk you should be aware of.
Market risk is the type of risk most people think of when they think about investing. Market risk is the chance investments will decrease in value due to market conditions or global events that impact the market. Changing values of equity, interest rates, and currency all fall under this type of risk.
As inflation rises, some investments are unable to keep up with the rate of inflation. When this happens, your existing investments will not get you the same amount of return as their purchasing price on the market is lower than you paid for it initially. This kind of risk is more often associated with bonds and other debt-based securities.
Similar to inflation risk, liquidity risk is the possibility that you won’t be able to recover your money when you sell an investment. Sometimes, the selling price falls due to market conditions or other events, preventing you from selling the investment at a high enough price to break even. If you do sell, you may have to accept a lower price than you paid initially.
When you invest primarily in one specific type of investment, your investments are subject to concentration risk. If that investment’s value plummets, you lose the majority of the money you invested.
At Black Harbor Wealth Management, we’ll work with you to create a personalized, diverse, and long-term portfolio to help you reach your financial goals and save your major life events. We’ll take the time to address the types of risk your portfolio faces and explain how we can help create a more sound investment plan. Contact us today.