Financial Investing 10 – Understand Your Investment Risk
December 21st, 2009
All investments involve some risk, and a clear understanding is required for the client to manage these risks properly.There are several types of risk.
I. Systematic risk
All businesses experience some economic reversals. Therefore, market risk is a systemic risk that the value of the investment may suffer from some economic, political or social change.
II. Unsystemic risk
Financial and default risk of an individual company are considered to be unsystemic risk.Quality of management, ability to offer better goods and services for a profit including control costs and meet competition all will help in reducing the risk.
III. Financial risk
Some company may not perform as well as expected, or may fail and go bankrupt. That is financial risk if you invest in those companies.
IV. Default risk
This is a risk if the issuer of a bond or debenture can not be able to repay the loan. In the event of bankruptcy, secured creditors come first, shareholders second. If the security pledged has declined in value, it may no longer be sufficient to satisfy the claims.
V. Interest rate risk
The interest rate risk is associated with fluctuations in the interest rate and how it affects the investment. There are a few ways the interest rate can affect the investment
a) If the interest rate rises, bond prices will drop if sold before maturity.
b) If a fixed interest rate security is held, it protects the investment against falling interest rates and it also locks in the investments for the lower rate when the interest rate rises. Bonds are highly subject to interest rate risk.
VI. Marketing risk
A “marketability risk” occurs when a buyer cannot be found at the time the investor wants to sell.
1. No market
Company has gone out of business.
2.Thin market
Poor exposure or reversal.
3. Active market
Everybody wants a piece of the security.
VII. Exchange rate risk
Foreign investments are subject to an exchange rate risk. If an investment is denomination in foreign currencies and the domestic currency falls, the foreign investment value increase.VIII. Inflation riskInflation erodes the purchasing power of an investment so that over time it declines in real rate of return.
I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:
http://lifeanddisabitityinsuranceunderwriter.blogspot.com/
http://financialinvesting09.blogspot.com/
http://financialinvesting10.blogspot.com/
All rights reserved. Any reproducing of this article must have all the links intact.
Kyle J. Norton
http://www.articlesbase.com/investing-articles/financial-investing-10-understand-your-investment-risk-610213.html
December 21st, 2009 at 11:13 pm
We will be taking a financial management course and I am wondering what your specific questions would be. Why?
Here are the six key topics but what would be your top 3-5 specific questions? Why?
Cash Management
Making the most of your income
Reducing your debt
Taking control of your credit
Assessing your current situation
Traditional savings vehicles
The impact of inflation
How much cash?
Risk Management
Reducing financial risk
Protecting your property and assets
Are you properly insured?
Types of medical coverage
Homeowners and auto insurance
Disability income and long-term-care insurance
How much life insurance do you need?
Avoid being under- or over-insured.
Tax Planning
What’s your marginal income tax bracket?
Impacts of the latest tax laws
Avoid paying more taxes than you owe
Using tax strategies to your advantage
Taxable equivalent yield
Investment Management
Basic types of investments
Understanding your risk level
How to measure investment risk
Making better investment decisions
Proper asset allocation
Dollar cost averaging
Benefiting from tax-deferred investing
College funding strategies
Retirement Planning
The penalty of procrastination
Sources of retirement income
Employer retirement plans
IRAs/Roth IRAs
Calculating the cost of your retirement
Determining your distribution from retirement plans
Rollover options
Wise Estate Conservation
Having your estate distributed according to your wishes
Avoiding probate and excessive estate taxes
Learning about the benefits of trusts and charitable giving
December 22nd, 2009 at 4:15 am
you forgot to tell us WHY you are taking a financial management course.
Having known THAT, I’d have worked out WHAT you need to study to achieve WHAT you want to achieve.
I mean, if you have no estate, why would you want to know how to
"get one distributed according to your wishes" know what I mean??
References :
http://credit—card.org/