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The Dirty Dozen Investing Risks

#1 Inflation risk

It's known as Public Enemy #1 because it hurts all of us consumers.

As the prices of goods and services rise over time, our money buys less and less.

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#2 Company risk

This is the most obvious investing risk. Have we chosen a company that will succeed?

If it does poorly going forward, then we’ve not chosen wisely.

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#3 Economic risk

If investors are surfers, then the economy is the wave they're riding.

If the overall level of economic activity slows, it will likely impact the investments they hold.

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#4 Longevity risk

A difficult challenge investors face is not knowing how long they'll live.

There’s a chance they’ll outlive the “nest egg” they’ve built over their careers.

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#5 Legislative risk

Governments are always on the look-out to protect us from harm.

They may decide to restrict or prohibit the activities of a corporation you’re invested in.

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#6 Country risk

Sometimes the best investment opportunities require investing outside the U.S.

But, not all countries have strong investor protections. It’s critical to investigate the country within which you want to invest.

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#7 Systemic risk

To buy, hold and sell fairly valued investments depends on a functioning financial system.

In times of crisis, the financial system can freeze up, causing rippling harm worldwide.

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#8 Execution risk

Troubled corporations may announce bold plans to regain market leadership.

But, can they execute? Should investors believe they’ll achieve what they’ve announced plans to do?

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#9 Market risk

Normally functioning markets will fluctuate with supply and demand driven by buyers and sellers who come and go.

Investors who sell during market dips will lock in lower prices than they’d receive if they waited for a rebound.

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#10 Timing risk

What if you purchase an investment and soon after the corporation announces...

… terrible financial results or other bad news which makes the stock plunge?

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#11 Liquidity risk

What good is owning an investment if you can't get a fair price when trying to sell it?

The ability to sell an investment quickly for a fair price is known as liquidity.

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#12 Geopolitical risk

Hostile nations can fight each other while avoiding conventional warfare.

They do so by penalizing the corporations that are based in the country they wish to harm.

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#13 Interest rate risk

Investments that earn a set rate of interest lose value when interest rates rise.

The reason is that new investments will pay the new higher rate and be more attractive.

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Bonus: More risks!

We're not done. There several more risks investors may be subject to.

Let’s take a brief look at them.

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This is the home page for the investing and financial education content created by educator Tom Barrella

Investeach

1 year 3 months ago

Well, if investors are going to lend you money for 30 years at a record low interest rate, why not ask what they'd want to extend their commitment even further?

Investeach

1 year 3 months ago

Absolutely stunning reversal. Bond investors making it clear they think interest rates are going to continue to fall.

Investeach

1 year 4 months ago

A Tesla-size $47 billion valuation for a money losing company.

Investeach

1 year 7 months ago

In the investing class we've introduced mutual funds and started discussing the move by retail investors to index investing.

Investeach

1 year 8 months ago

A great little Bull case / Bear case article:
www.marketwatch.com/story/five-reasons-to-buy-ges-stock-and-five-reasons-to-sell-2019-03-07

Investeach

1 year 9 months ago

A capital budgeting decision that went south for a host of reasons.

Investeach

1 year 9 months ago

We spend a lot of time talking about this issue in our College Corporate Finance course. Not on board with much of the rationale, but yes, stock repurchases are out of control.

www.nytimes.com/2019/02/03/opinion/chuck-schumer-bernie-sanders.html

Investeach

1 year 9 months ago

A great article that talks about corporations directing their activities toward the risk I discuss with my classes as Legislative Risk (in the article, Regulatory risk), not away from it (and other risks).

angel.co/blog/why-you-should-join-a-regulated-startup

Investeach

1 year 10 months ago

"The last honest man on Wall Street" has died. We talk about Jack later in the school year when we look at mutual funds.

Investeach

1 year 10 months ago