Risks and the Culprits in Investment



The Basic Investment Risks to Keep an Eye On
If you have a weak heart or if you are not prepared to accept any risk at all, then investment may not be the wealth creation option you should take. If you want to invest, then you must be prepared to take a risk. The amount or extent of the risk will depend on the investment you finally select.

Some risks you could experience include the following:

  • You could make a loss on your investment when you cash it in, leaving you with a smaller amount of capital than you started off with.

  • You could lose because inflation affected the buying power of your investment by the time you sell it and your capital is returned.

  • You may make less return that you had expected, or what you adviser estimated.

  • Your investment may become subject to a hammering because of the market at any time, resulting in poor performance and poor income returns.

  • You could find out later that you would have made a better return with less risk by going into alternative wealth growing options.

  • You may have had too short a time frame to enable the investment to get into a position of good value.

  • The company in which you invested may go into liquidation, causing a total loss of that asset to you.


Biggest Investment Culprits
The biggest culprits for delays in returning your funds according to some sources are contributory mortgages. Other investments that could also lose a chunk of your cash are property bonds and property syndicates.
With the apparent bricks-and-mortar security of real estate behind them, these investments promise high returns. Some companies even use the words "low risk". But don't mistake them for genuinely low-risk choices such as bank term deposits.

Contributory mortgages and property bonds take money from small investors and lend it to a property owner or developer. As an indication of the riskiness, they may be offered to the public after banks have refused to lend the money. Property syndicates invest directly in buildings. Because syndicates are designed to be held for a longer period of time, don't expect to get your cash back early. If you do, be prepared to take a loss.


Check out Property Syndicates
These are usually a combination of a shareholding and a fixed interest investment. Various Securities Commissions have criticised the way these types have been promoted. They are generally advertised as worry-free investments. "Property income for your retirement," promises newspaper ads for a syndicates run by property investment companies. "All the benefits of direct property ownership - without the hassles!"

Unfortunately, this isn't quite true. When you want your money back, you'll need to find a buyer for your investment, just as property owners need to find a buyer for a property.


Losing on Bonds and Notes
The potential for losing money when you cash up through the secondary market doesn't just apply to property syndicates - it also applies to bonds and capital notes, both popular fixed interest investments.

Cashing up early can leave you out of pocket if interest rates have risen or a company has gone out of favour.
You can also lose money selling bonds early if a company's popularity has slipped.

As with the other investments above, bonds and capital notes can be a useful part of your portfolio if they meet your needs and you understand the risks. If you buy when they're issued and hold to maturity, you avoid the risk of loss on the secondary market.