Everyone ceratainly do not want to have risks in their daily life. However, every activity you do will always have risks in it, including investment. Each type of investment certainly has risks, including if you choose deposit interest as an investment.
According to Investopedia, in finance and investing, risk often refers to the chance an outcome or investment’s actual gains will differ from an expected outcome or return.
However, you have to understand that there are risks in investments. You must know what the risks are. Then, you have to know how to solve them.
Here are 7 type of investments risks that certainly exist in the investment world:
Interest Rate Risk
Interest rate risk is the risk that arises because of the relative value of interest-bearing assets. For example, loans or bonds will deteriorate due to an increase in interest rates. This risk can be interpreted as a risk caused by changes in market interest rates that will affect investment income.
In general, if interest rates increase, the price of fixed-interest bonds will go down, and vice versa. Interest rate risk is generally measured by the term of the bond, the oldest technique now used to manage interest rate risk.
Market Risk
This market risk is the risk of fluctuations in Net Asset Value (NAV). The changes in financial market sentiments (such as stocks and bonds) often cause this risk. It often refers to as systematic risk, meaning that this risk is unavoidable. Additionally, the investors always experience this risk.
Moreover, it can even make investors find capital loss. This change can be caused by several things such as an economic recession, issues, riots, speculation including political change.
You do not need to panic and immediately withdraw investment funds when facing market fluctuations since a decrease or increase in assets like this does not happen continuously.
Inflation Risk
Inflation risk or purchasing power risk is an opportunity that the cash flow from an investment will not be worth as much in the future because of changes in inflation.purchasing power.
This risk has the potential to adversely affect people’s purchasing power over-investment due to an average increase in consumer prices.
The investors can face the inflation risk when they hold cash or investing in assets, not related to inflation.
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