Risk name   Summary (The risk that…) Deal with it!
1. Inflation   … the annual rate of increase in the prices of the goods we buy and services we consume will be higher than you were anticipating. When a higher inflation rate is subtracted from the rate of return your investments are earning, soon you may be left achieving little or no “real” return each year.
  1. Buy TIPS bonds, a special type of bond issued by the United States government that compensates for inflation
  2. Purchase real assets like metals, grains, and oil (or the financial equivalent of these)
  3. Don’t buy long-term bonds or otherwise loan your money out at a low fixed rate for a long period of time!
2. Interest rate   … after you commit to lending your money out for a significant number of years at a fixed rate, interest rates in the economy rise. Had you waited a while before making your loan, you would have been able to lock in a higher rate of interest..
  1. Buy TIPS bonds, , a special type of bond issued by the United States government that compensates for inflation
  2. Buy floating rate bonds
  3. Don’t buy long-term bonds or otherwise loan your money out at a fixed rate for a long period of time when interest rates are at historical lows!
3. Economic   …an overall downturn in the economy will result in lower sales and profits (and consequently a lower stock price) for the corporations you invested in
  1. As a recession approaches, invest in so-called “defensive” stocks such as makers of necessities like tooth paste and laundry detergent or utility companies which supply our homes with the electricity and natural gas
  2. Instead of defending, go on offense! Invest in companies that may do especially well during tough times: pawn shops, dollar stores, collection agencies, and liquor makers
  3. Put protective “sell stops” orders in place so that your stocks will sell if they drop to a level representing the maximum loss you want to suffer
4. Market   … during the normal lurches upward and slides downward that markets experience, you’ll have to sell some investments when the markets are down
  1. Keep an emergency fund of cash around representing three to six months’ of living expenses. This way, you’ll never be forced to sell your investments during a temporary market dip just because you need cash quickly.
5. Company   … you will lose money simply because you invested in a particular corporation and going forward it does poorly
  1. Don’t put too much money into any one corporation’s stock.
  2. Invest in mutual funds, index funds, and etf’s, all of which “hold” dozens to as many as hundreds of different corporations within them. Essentially by purchasing them using a single stock symbol, you are really buying a piece of many different corporations
6. Systemic   … a breakdown of the American or global financial system will cause panic selling and major losses for investors
  1. Invest in assets deemed by the investing community to be the ultimate places to run for safety. Currently, that is U.S. Treasury bonds. However, this may be the world’s biggest trap because the U.S. has its own major problems and so many people have already run for safety by purchasing these bonds that they are very overpriced.
  2. Keep a significant portion of your money on the sidelines (ie: in cash). When panics start and people see the value of their investments plunge, they hit the “Sell” button ASAP and ask questions later. The money you have on the sidelines is not vulnerable to panic.
7. Longevity   … that in retirement you will outlive the pile of money you saved up before you retired
  1. Make sure to save up enough money that you can live off what it earns each year. By never having to take a piece of the pile of money and spend it, it will earn money for you year after year. For example, if you accumulate $1 million by retirement and earn 5% on it, that’s $50,000 coming to you each and every year! Of course, if you believe you are nearing the end of your life, you can also start spending the $1 million itself. Why leave all that money to those snot-nosed kids?
  2. Purchase an annuity, a special type of investment / insurance policy that allows you to pay an insurance company money in the years leading up retirement and to collect money from the company from the year your retire until you pass away.
8. Timing   … something dramatic happens soon after you make an investment which causes it to plunge in value
  1. If you receive a large sum of money, don’t “throw down” all of it on a particular corporation at one time. Instead, invest a fraction of it every month. What’s the hurry if it’s to be a long-term investment? BTW, this approach is called dollar cost averaging.
9. Country   … you will suffer a loss investing in a foreign country due to something about that country that doesn’t exist or occur in the United States, such as political instability or a drop in the value of the nation’s currency.
  1. If you want to venture outside of the US to make direct investments in specific corporations, stick with those that are based in the most advanced democracies, such as England, Germany, Japan and Canada.
  2. Investing internationally by purchasing the shares of actively-managed international mutual funds. While you should check the performance of each fund, the point is that each is run by a professional whose job it is to be an expert in the foreign countries in which the fund invests.
10. Legislative   … the government will pass a law making the activities of a corporation you have an investment in illegal or very expensive to conduct
  1. Don’t invest in corporations whose activities are shady and which are already under criticism from consumer advocates because of what they do.
11. Execution   … a corporation will not be able to pull off something ambitious and groundbreaking it has announced its intention to do. It might be a revolutionary product but it can also be trying to successfully take over a competitor with a very different culture.
  1. Don’t invest in corporations whose plans are so grand that experts in the industry express doubt about. You’ll have to keep up with the news, read the opinions and judge for yourself.
12. Liquidity   … when you want to sell an investment, there will be no one around who wants to pay you a fair price for it
  1. Don’t buy stock in tiny companies whose shares trade hands among investors infrequently. 

Cost of Seizing Fannie and Freddie Surges for Taxpayers