Posted in Risk vs Reward.

Types of Risk

Eleven different risks commonly identified in investment markets

  1. Market or Systemic Risk - Impossible to avoid if you are invested at all and difficult to diversify. It is the risk that the whole market wont perform to expectations.
  2. Specific or Business Risk - The risk relating to a specific business or investment asset. Easily diversified by investing in a number of different businesses and or assets.
  3. Market Sector Risk - Relates to a particular sector of the market such as fixed interest or shares. Can be reduced by diversifying investments across different sectors.
  4. Financial Risk - The risk of the loss of funds due to the investment failing.
  5. Economic Risk - Risks associated with macro-economic factors such as inflation or Government monetary policy.
  6. Inflation Risk - The risk that the real value of your investment will fall if you don't earn at least as much as the inflation rate.
  7. Political Risk - The risk that changes to Government Policy may occur. May be due to a change in Government or a change in policy.
  8. Liquidity Risk - The risk that you may not be able to sell your investment when you want to sell it without accepting a price considerably less than "market".
  9. Timing Risk - The risk that you may by or sell assets at the wrong time. Inadvertently buying high and/or sell low.
  10. Opportunity Risk - The risk that you are unable to take advantage of a better return in a different investment.
  11. Information Risk - The risk that information about an investment is incorrect or that others have access to information before you.