It goes without saying that any decision relating to personal investment (and for that matter for any type of investment, large or small, by individuals and families or even by mega corporations) would always carry a certain element of risk. Depending on the type of investments, such Investment Risks may be grave and moderate and may take many forms. Some of the forms of Investment Risks are:
- Business Risk
- Market Risk
- Interest Rate Risk
- Reinvestment Risk
- Inflation Risk
The above list is only an illustrative one to indicate the various types of risks to which your investments may be subject to. For a prudent and informed management of Personal Finance, all these risks require a careful evaluation and assessment
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A variety of factors comprise business risks and they include impact of fiscal and monetary policies; regulatory policy; management and technological changes; competition, liability arising out of use of the products. Thus, business risks indicate the changes in environment in which a company or business firm may operate. These changes may positively or negatively impact the functioning of a company, and its ability to earn profits.
A well-informed individual will assesses the business risks, which a company may face before investing in the equity stocks of that company.
Interest Rate RiskEdit
It is the general tendency that over a period of time prices rise, and to buy the same unit of any thing, you will have to spend more money. Thus, you may have to pay more price to buy the same amount of goods or services now than compared to few months or years before. This is on account of inflation and due to inflation, the value of money continues to get eroded.
Anticipating the trends of inflation and investing a portion of one's savings in assets which work as hedges to counter inflation is a good idea to protect the value of your wealth. Investments in real estates and in precious metals like gold, silver and platinum are considered better investments to counter the affect of inflation.