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Series 6

Investment Types of Risks

QuestionAnswer
Capital Risk description General term for possible loss of money invested.
Capital Risk investment issues The risk is present in most securities.
Timing Risk Investing in a specific security at an inopportune time.
Timing Risk Investment issues Dollar cost averaging is used to avoid this risk.
Market (systematic) Risk Possible loss of value due to a broad market decline.
Market Risk Investment issues (systematic) For equities, this risk is measured by a statistic called beta.
Liquidity Risk Ability to quickly sell an investment at or near current market price.
Liquidity Risk Investment issues Regardless of type, more heavily traded securities are more liquid.
Political Risk (legislative) Changes in value of one currency versus another currency.
Political Risk (legislative) Investment issues The common wisdom is that political risk is high anytime Congress is in session. This is also used in the context of foreign securities.
Currency Risk Changes in value of one currency versus another currency.
Currency Risk Investment issues Current owners of foreign securities may see a negative impact if foreign currency weakens against their home currency.
Opportunity Cost Risk Loss of income or appreciation because an investment was NOT made.
Opportunity Cost Risk Investment issues When making one investment, one always forgoes others that might have provided a better return.
Created by: coderman on 2011-06-18



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