There is more at risk in your investment than just losing some of your capital. Understanding and accounting for all of the various risks involved in constructing and maintaining a portfolio enables you to properly evaluate your levels of risk and minimize them. Some of the main risks you will face are:
- Capital Risk – The risk that comes first to the mind, that your invested capital may decrease as a result of market performance.
- Inflation Risk – People often overlook the impact inflation can have on the real return of your investment. IF your investments aren’t keeping up with the increase to your cost of living then you are losing money.
- Liquidity Risk – An investment may end up tying up your capital at a time when you may need additional cash on hand.
- Correlation Risk – By not being properly diversified, portfolios run the risk of being tied too heavily to one particular market segment, increasing the overall risk levels.
- Opportunity Risk – The risk of missing out on an investment opportunity, whether by poor decision making or having capital tied up in non performing investment.
- Timing Risk – Markets are constantly evolving, so timing your investment manoeuvres correctly can make significant differences to your overall risk and reward.