Unraveling the Mystery of Investing #1 Investing can be very complicated or very simple. It can be very successful or disastrous. There is risk with investing and there is risk in not investing. Investing can be very enjoyable or very distasteful. So in this chapter we want to give you

Liquidity Risk Liquidity risk means not being able to liquidate an investment quickly while keeping the original investment amount intact. This can occur with investing in bonds where the bond must be held to maturity in order for you to achieve a specific interest return. It can also be a

Inflation Risk Inflation risk is the danger that inflation will reduce the purchasing power of your investment over time. Low-yielding investments such as savings accounts and money market funds may not earn enough to outpace rising prices.

Economic Risk Economic risk can surface due to the fact that slow economic growth will be too weak to sustain or improve the return on a particular investment. For example, the price of shares in growth companies that require a strong economy to sustain earnings may fall during an economic

Interest Rate Risk Interest rate risk occurs when changes in interest rates cause the value of certain investments to decrease. For example, when interest rates rise, the market value of fixed-income securities, such as bonds, declines. Bond investors hate inflation because it erodes the value of bonds’ fixed interest payments.

Market Risk Market risk is the risk associated with market fluctuations that can depress the value of particular investments. All stocks and bonds can be affected by downturns caused by fraud, war, or calamity. Additionally, certain types of investments can experience a major downturn should there be a slowdown in

Company Risk If a company’s stock value decreases due to financial difficulties, this creates an instant company risk. Internal factors such as inefficient production and poor management or external factors such as problems with the industry, the economy, or trade can contribute to company risk.

Specific Risk  Specific risk involves any occurrences that may affect only a particular company. For example, the death of the founder, political developments, or heavy debt can affect a particular firm adversely. Some huge companies that have been around for a very long time, even with great products and unsoiled

Market Averages – Investment Returns Investing has its risks.  Investing in the equities market has its risks and volatility.  Every investor must assess his/her ability to live with both overall risk and seasonal volatility.  According to investment broker Charles Schwab & Co., Inc. since 1926 equities have generated an average of