Investment Risk

Investment involves risk. Investment is about speculating what is going to happen in the future and trying to guess which investment is going to give the best future return based on market trends.

There are a number of types of risk that once analysed can help the investor best minimise the risk that will affect their portfolio. Different types of risks affect different investments – for example there are risks that affect capital and income – changes in the business environment can cause a business to not perform as well causing a reduction in company earnings.

The major types of investment risk are as follows:

  • Business: This risk occurs when due to mismanagement or poor internal controls a business performs under par or even collapses. This will affect company earnings and will affect the share price. If the company goes under you will more than likely lose your shares completely – shareholders are at the end of the list of receivers in a liquidation.

  • Financial: This risk occurs when a business gets into financial difficulty through events such as a deal not...

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