What Investment Risks Should I Know About?

Taken by itself, the word "risk" sounds negative. But broken down into what it really stands for in terms of investing, it begins to be a little more manageable. By understanding the different types of risk and keeping an eye on your investments, you may be able to manage your money more effectively. Remember, strategic investing doesn’t mean "taking chances" so much as "making decisions." Long-term investing and diversification may be some of the most effective strategies you can use to help manage investment risk; however, neither guarantees against investment loss.

Inflation Risk

The main risk from inflation is the danger that it will reduce your purchasing power and the returns from your investments. If your savings and investments are failing to outpace inflation, you might consider investing in growth-oriented alternatives such as stocks, stock mutual funds, variable annuities, or other vehicles.

Interest Rate Risk

Bonds and other fixed-income investments tend to be sensitive to changes in interest rates. When interest rates rise, the value of these investments falls. After all, why would someone pay full price for your bond at 2% when new bonds are being issued at 4%? Of course, the opposite is also true. When interest rates fall, existing bonds increase in value.

Economic Risk

When the economy experiences a downturn, the earnings capabilities of most firms are threatened. While some industries and companies adjust to downturns in the economy very well, others — particularly large industrial firms — take longer to react.

Market Risk

When a market experiences a downturn, it tends to pull down most of its securities with it. Afterward, the affected securities will recover at rates more closely related to their fundamental strength. Market risk affects almost all types of investments, including stocks, bonds, real estate, and others. Historically, long-term investing has been a way to minimize the effects of market risk.

Specific Risk

Events may occur that only affect a specific company or industry. For example, the death of a young company’s president may cause the value of the company’s stock to drop. It’s almost impossible to pinpoint all these influences, but diversifying your investments could help manage the effects of specific risks.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2012 Emerald Connect, Inc.

*An Index is a portfolio of specific securities. The performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is not indicative of future results.

Investors should be aware of additional risks associated with international investing such as increased volatility, currency fluctuations and differences in auditing and financial standards.

Investors need to be aware that no investment plan/asset allocation can eliminate the risk of fluctuating prices and uncertain returns.

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax or legal advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary; therefore, the information should be relied upon when coordinated with individual professional advice.

Robert S. Keidan is a Registered Representative of and offers securities products & services through Royal Alliance Associates, Inc. Member FINRA/SIPC, a registered broker-dealer. In this regard, this communication is strictly intended for individuals residing in the states of AL, AZ, CA, CO, CT, FL, GA, HI, IL, IN, KS, KY, LA, MD, MI, MO, NC, NY, OH, OR, PA, SC, VA, WA, and WV. No offers may be made or accepted from any resident outside the specific states referenced.

Robert S. Keidan is also separately registered as an investment advisor representative under Keidan Financial Consultants, LLC a Registered Investment Advisor. As such, advisory services are strictly intended for individuals residing in the states where we have notice filed: AZ, CA, CO, CT, FL, GA, HI, IN, LA, MI, NC, SC, VA, WA, and WV.

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