Understanding and Managing Risk

Risk is an essential ingredient in investing. There is a direct correlation between risk and reward, and there is no such thing as a risk-free investment. Even investments that guarantee a return of principal and a certain rate-of-return over a specified period of time are burdened by inflationary, liquidity, and interest rate risks. The key is not to avoid risk, but rather to understand it and manage it at a level that is comfortable and appropriate. The major investment risk factors are listed below. Click the link for more detail about any of them.

• Market Risk - the risk that your investment will lose some or all of its value

• Inflation Risk - the loss of purchasing power due to rising prices

• Interest Rate Risk - the risk that bond prices will drop as interest rates move up

• Liquidity Risk - the risk of having to sell a holding at a discount in order to attract buyers

• Credit Risk - the risk that a bond issuer won't be able to pay its debts

• Currency Risk - the fluctuation of exchange rates among different currencies like the U.S. dollar, the Euro and the Japanese yen