Understand Types Of Risk!

Risk is the potential that a chosen action or activity (including the choice of inaction) will lead to a loss (an undesirable outcome). The notion implies that a choice having an influence on the outcome exists (or existed). Potential losses themselves may also be called "risks". Almost any human endeavour carries some risk, but some are much more risky then others.


1) General Market Risks
    - These are daily market fluctuations caused by the demand and supply situation, which in turn are caused by factors such as : economic conditions, unstable political situations, investor sentiments.


2) Inflation Risks
    - This risk will directly affect funds that are placed into those asset classes that are not inflation-hedged, like Fixed  Deposits and Bonds.


3) Liquidity Risks
    - This type of risks occurs in asset classes where there are not many buyers and sellers that are readily available , like Real Properties.
     
4) Default Risks
    - This risk is where the borrowers are not able to repay the principal amount or the interest. Bonds are particularly vulnerable to this risk.


5) Foreign Currency Risks
   - This risk occurs when we invest in overseas or offshore investment, where the currency that we invest in weakens against the currency that we originally invested.


6) Estate Shrinkage Risks
    - There is always the risk that a person dies suddenly whilst in the midst of "playing the investment game". There may be a severe market downturn that can adversely affect the value of the investment at time of death.