#5/ INVESTMENT RISK !!! HOW TO MANAGE IT ?
In the previous post I tried to shed the light on investment factors and talked about the risk related to it.This post is devoted to the risk its forms as an investment factor and different ways to handle it.
First of all here is a brief definition of investment risk : Investment risk can be defined as the probability of occurrence of losses relative to the outcome on any particular investment.
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A. RISK RELATED TO INTEREST
Fixated rate debt instrument declining as a result of interest risk rise, so if you assume that the interest risk will decline in the future u might go for avoiding long term maturity risk or make your bond holding shorter.Therefore the most important thing to do in these kind of situations is to learn how to anticipate the interest rate factors.
B. BUSINESS RISK
It s a measure of risk that is related to security it is called business risk or (unsystematic risk). This risk is essentially based on the fact of not being able to pay the interest in the case of bond by the issuer of a stock. So as a solution to this problem it is preferable to use diversification which means vying mutual funds
C. CREDIT RISK
It is related to the bond issuer, because he might not be able to make expected rate payment which could be a serious problem to the investor. Basically the higher the credit risk the higher the interest rate on the bond .
D. INFLATIONARY RISK
(Purchasing power risk), it is the risk related to income or assets decrease which shrinks the country's currency.That is to say that risk make the purchasing power of cash flow decline . So as a measure to be taken, the appropriate investment in this situation is convertible bonds or stocks considering their growth component that stay ahead of inflation.
Well, these were some kinds of risk that every investor should consider before starting their investment and be careful with it because it is the key to managing investment project in the best way by controlling the factors that influence its success rate .
I hope this could be helpful for everyone and give you an idea about how investment projects should be managed.
If you have any remark or add please comment bellow, to those who didn't check my other posts about investment, the links are bellow,
"Investing in steem as early as possible" : https://steemit.com/steem/@simolab/2-invest-in-steem-today-before-tomorrow,
," Tips to start an investment" : https://steemit.com/investment/@simolab/3-tips-to-start-an-investment
, "Investment factors": https://steemit.com/investment/@simolab/4-investment-factors-learn-how-to-manage-it
and my introduction post: https://steemit.com/introduceyourself/@simolab/hi-there-let-me-introduce-myself.
100% OWN WORK !!! , based on my management studies experience, except for the PICTURES !!! the source is bellow:
https://www.peakprosperity.com/insider/104020/cuff-repercussions-rising-rates
http://intuitive.solutions/blog/
https://www.dreamstime.com/royalty-free-stock-photo-credit-risk-image26762335
https://www.dreamstime.com/royalty-free-stock-photo-credit-risk-image26762335
http://www.metrac.org/email/enewsletter.31mar17.html?utm_source=enewsletter31mar17&utm_medium=email&utm_campaign=enewsletter
Another great post. Keep up the great work. Your posts help me.
Concerning interest risk, we here in the United States are looking at rising interest rates. The Federal Reserve has been keeping interest rates artificially low here. It's been making getting loans easier, but it hurts many elderly folks on a fixed income and with savings accounts that don't pay much interest at all. I suppose government manipulation is something to consider when thinking about interest risk.
Concerning credit risk, that is what caused the terrible securities crash in 2008 with Goldman Sachs and others getting bailed out by the government. From what I understand, mortgage backed securities failed and insurance on them couldn't pay up, so the government printed (nowadays it's just an entry in a digital ledger) trillions of dollars to bail them out. Sometimes being politically connected can mitigate credit risk, but at the expense of taxpayers and the correcting "invisible hand" of markets. As a side note, I understand some people got rich from credit default swaps during the crash of 2008. Ever seen the movie "The Big Short"? It sadly never mentions the role of the government in fueling the mortgage crisis with Fannie Mae and Freddie Mac buying up the mortgages at break neck speed, but it does explain a bit about some of the financial shenanigans that go on. And it's hilarious. https://en.wikipedia.org/wiki/The_Big_Short_(film)
Concerning inflationary risk, take a look at Venezuela. That government has destroyed their money through inflation to the point of their bolivar is so worthless people don't want it. People buy US dollars in the black market. I suppose inflation is another risk where you must account for government manipulation. On another side note, cryptocurrencies like Steem and Bitcoin help people in bad situations like Venezuela where politics has destroyed the money used to value worth in the country. Cryptos could feel that need when governments destroy money.
I appreciate your remarks, Indeed a lot of investors find their path to investing field more easily with the help of cryptocurrencies. That's why we can notice the huge number of investors in this field which is still increasing with a terrifying speed, it gives them more opportunities and chances to handle the inflation risks .Moreover, cryptocurrencies are also known to be destroying the central banking and making it easier for everyone in the world to make his own success and realize their dream. That's why investing in them is a bless for all and especially in this era . Concerning the film you have mentioned in your comment I ll make sure to watch it, so thanks for your adding , it is always a pleasure for me to receive such a great adding . I will try to develop even more my coming posts and try my best to share good information with everyone .
Great information, keep up the good work. Without risk there is no reward!
Thanks ! Yeah investment is all about risk !!
thanks great post and info ! 👍👍👍
I m grateful for that !!
awesome your welcome!👍👍👍
Nice article @simolab, upvoted! Would you like to read my article about an undervalued oil exploration stock? I'm trying to start a community about investing and stocks on Steemit (Because it is still very small). I would like to share some thoughts with someone who knows about the stockmarket. Thank you!
niice post man !!
upvote me for my last post
i you upvoted
Thanks for that !
Great job!
I appreciate ! Thanks
Your posts always have contents with good quality. Thanks for sharing these kind of posts about important subjects! looking forward to your next work !!
Thanks for that ! I ll keep working hard to produce contents that would help steemians even more !!
This is very informative
Thanks a lot I appreciate !
business is all about risk. Nice one. upvoted and resteem.
Thanks for that, I m glad you liked it !
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Thanks a lot, I really appreciate it !!!