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9 types of investment risk

When you invest, you’re exposed to different types of risk. Learn more about some of these risks and how they can affect your investment returns.

9 types of investment risk

#1: Market risk

The risk of investments declining in value because of events that affect the entire market. Examples of market risk are: equity risk (shares), interest rate risk (bonds) and currency risk (foreign currency investments).

9 types of investment risk

#2: Liquidity risk

The risk of being unable to sell your investment when you want to. If you are able to sell the investment, you may need to accept a lower price than what you paid. In some cases, you may not be able to sell your investment at all.

9 types of investment risk

#3: Concentration risk

The risk of loss because your money is concentrated in one investment or type of investment. When you diversify your investments, you may spread the risk over different types of investments, industries and geographic locations.

9 types of investment risk

#4: Credit risk

The risk that the government entity or company that issued the bond won’t be able to pay the interest or repay the principal at maturity. Credit risk applies to debt investments, such as bonds.

9 types of investment risk

#5: Reinvestment risk

The risk of loss from reinvesting principal or interest at a lower interest rate than the original investment. This risk will not apply if you do not intend to reinvest the regular interest payments or principal at maturity.

9 types of investment risk

#6: Inflation risk

The risk of loss in your purchasing power because the value of your investments won’t be worth as much in the future. Inflation erodes the purchasing power of money over time – the same amount of money will buy fewer goods and services in the future.

9 types of investment risk

#7: Horizon risk

The risk that your investment time horizon may be shortened because of an unforeseen event, for example, the loss of your job. This may force you to sell investments that you were expecting to hold for the long term. If you must sell at a time when the markets are down, you may lose money.

9 types of investment risk

#8: Longevity risk

The risk of outliving your savings. This risk is particularly relevant for people who are retired, or are nearing retirement.

9 types of investment risk

#9: Foreign investment risk

The risk of loss when investing in foreign countries. When you buy foreign investments, for example the shares of companies in emerging markets, you face risks that do not exist in Canada, such as the risk of nationalization.

9 types of investment risk

Research the risks before you invest

When making investment decisions, make sure you understand the risks associated with the investment. Ask for more information and get answers to your questions before you invest. Learn more about investment risk.

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