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What Is Currency Risk?
Globalization and the internet have expanded investment opportunities. Depending on your investment appetite, you could invest in a German broad market index or tap into an authorized agent to acquire a United Kingdom government bond.
What Is Inflation Risk?
Several things occurred in 2021. COVID-19 variants continued to mutate and spread, even as vaccines were more available. Climate change generated extreme weather events worldwide, from raging storms to drought to wildfires. And inflation in the United States pushed to a 40-year high.
What Is the Difference between Systematic and Unsystematic Risk?
Managing your exposure to risk is an important aspect of investing. Every type of investment carries some degree of risk, and reducing your exposure to the factors that can negatively impact your investment capital could be the difference between red or black ink on your balance sheet.
What is Financial Risk Analysis?
The risk of losing money is an inherent aspect of investing. The process of assessing and measuring risk to determine an investment’s potential viability, as well as coming up with ways to potentially mitigate certain risk factors, is called a financial risk analysis or financial risk assessment.
What Is Reinvestment Risk?
Let’s say you’re an investor with a portfolio of bonds, and one of those bonds is nearing its maturity date. Thanks to the relatively high interest rate attached to that bond when you first invested in it, you’re looking forward to reinvesting in the same bond at the same class.
What Is Commodity Risk?
Commodity risk most commonly refers to price fluctuations for raw materials like steel, wood, gas, grains, coffee, and similar products. Price changes in either direction comprise a risk: a price increase is a risk for commodity buyers who use the materials to create their products. But for commodity producers, a price decrease is a risk. For example, if your company needs lumber to build homes or other products, the price increase can be a considerable risk. On the other hand, if reduced demand results in a price decrease, sellers (producers) risk losses.
What Is an Event Risk?
Event risk is the risk of a negative effect on a company’s value that results from an unexpected event. The event may threaten its ability to operate or its financial well-being. Events can be internally instigated, like a restructuring, an acquisition, or a product launch. Events can be externally caused, like a computer virus or a natural disaster. The event may affect just the specific organization or may be far-reaching.
How Do Interest Rate Risk and Reinvestment Risk Interact?
When interest rates go up, the cost of capital increases. How does this impact investors, or why should they even care? Specifically for bond investors, the fluctuations in interest rates can significantly impact their investments.
What Is Equity Risk Premium and How Do You Calculate It?
Investing is always linked to the risk of losing your investment capital – the cryptocurrency crash of May 2022 and ensuing collapse of the Luna coin from $119 in early April to a mere eighth of a penny just over a month later is a painfully clear example of how billions of dollars of investment capital can be vaporized.¹
What Is the 70% Rule in Real Estate Investing?
Investors often use the 70 percent rule when calculating the maximum purchase price they are willing to pay for a property that needs repair and improvements. Seventy percent is the amount of the ARV (after repair value) that an investor may be willing to spend to acquire a property. But the formula also subtracts the cost of needed repairs from the 70 percent of the calculated ARV. It sounds complex, but it is relatively straightforward:
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