Investing involves risk, and as a Certified Financial Planner, discussing and understanding your risk tolerance is an essential part of the process. In the world of finance, risk can take many forms. So, it is vital to understand the various risks and how you can stay in line with your comfort zone with the portfolios in which you choose to invest your hard earned money.
Have questions about risk and how it affects your portfolio?
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So, what are some types of risk we need to be aware of?
For a start, here are a few types of risk that I look at (and you might want to consider too) when considering any potential investment:
- Business risk. How healthy is the company behind the investment?
- Market risk. How well will this investment handle the ups and downs of the market and any major economic changes?
- Inflation risk. Will this investment make sense if overall prices go up?
- Liquidity risk. If we need to get rid of an investment in your portfolio, is there a market for it?
- Interest rate risk. This risk entails an investment’s potential to lose value due to a change in interest rates.
Risk isn't something to take lightly or ignore. Please reach out if you have questions about how to create your best next steps.