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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:
What Is Negative Leverage in Real Estate?
Real estate investors often use debt to finance their endeavors. This allows the investor to put up less money in acquiring a property. The use of debt by the investor is called leverage. Basically, the investor is granted buying power through a loan. It’s money the investor would not otherwise have.
What Is Capital Risk and How Do You Calculate It?
When deciding to invest funds into a risky (and hopefully high return) endeavor, one of the first decisions is how much money should be invested. It’s another way of asking how much money I want to lose if the venture goes south.
What Is Political Risk and How Can I Measure It?
At Realized Holdings, we write about risk on a frequent basis. There are all kinds of risks that impact investments, such as business risk, credit risk, general market risk, and systematic risk.
What Is Longevity Risk and How Can You Mitigate It?
Every so often, the media will announce that Americans are living longer than ever before. It’s true that recent headlines report shorter life spans because of COVID-19. But over the very long term (i.e., a 50-100 year big picture), people are living longer, thanks to improvements in medicines, medical technologies, and lifestyle choices.
How Are Bonds Affected by Inflation Risk?
If you’ve been paying attention to recent business and financial headlines recently, you know that we’re living in inflationary times. The Bureau of Labor Statistics releases a monthly Consumer Price Index (CPI), an indicator of inflation. The April 2022 numbers showed that the index increased by 8.5% from the year before. In other words, people are paying 8.5% more these days for baskets of consumer goods and services.
What Is Foreign Investment Risk?
When Russia invaded Ukraine on February 24, 2022, the United States, European Union, and other countries announced sanctions on Russia. These sanctions ranged from banning investments in and exports to Russia, sanctioning the Russian central bank and freezing assets of high-ranking political officials. This, in turn, drove Russia to impose its own economic sanctions and measures on foreign investors with assets and capital in the country. All of this, in conjunction with Russia’s shuttered stock market and the ruble’s collapse, has harmed foreign investors with exposure to Russian assets.
What is Concentration Risk and How Can You Mitigate It?
Putting all your eggs in one basket speaks to the essence of concentration risk.
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