Getting Savvy about Risk
Understanding how these 4 factors can play a role in your ability to achieve your financial objectives is an important part of becoming more savvy with your money.
1. Market Risk:
Market risk is what can happen in the stock and bond markets. If you invest in a profitable stock or mutual fund and the stock market declines, the value of the stock/mutual fund may drop regardless of the profitability of the individual investment. You might lose money if you have to sell at that point. If you wait until prices rebound and move upwards you may avoid the loss. It’s not a loss until you sell.
2. Recession Risk:
A recession, or period of economic slowdown, means investment of all kinds can lose value and make investing seem riskier. The concept is if the economy is slow there is a greater risk that the investment growth will slow as well. Of course, the opposite is true, too. Things seem less risky in periods of prosperity.
3. Interest Rate Risk:
Interest rates create several potential risks. When interest rates go up, the price of your existing fixed-income investment, like bonds, declines since they’re paying less than newly issued bonds taking advantage of the newly raised rates. In addition the money you’re earning on those investments will buy less. Plus, higher rates may also mean that stock prices decline as investors put more money in to the higher interest paying bonds/investments.
4. Default Risk:
A bond issuer may default, or fail to pay interest on schedule or repay principal maturity. Since most bonds are not insured, and an issuer who defaults is likely to have massive financial problems you may never fully collect on the debt. Buying only high-rated bonds limits but does not eliminate risk. If you have further questions or any concerns as to how these factors may impact your current investments I welcome your call.
With personal service,
The Tennessee Investment Services
located at The Tennessee Credit Union
phone: (615) 780-7804
fax: (608) 218-2355
*Please note: Securities trade instructions should not be accepted via e-mail. If you receive trade instructions via e-mail, they must be verified verbally before executing the transaction.
Representatives are registered, securities are sold, and investment advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, 2000 Heritage Way, Waverly, Iowa 50677, toll-free (866) 512-6109.
Non deposit investment and insurance products are not federally insured, involve investment risk, may lose value and are not obligations of or guaranteed by the financial institution.
CBSI is under contract with the financial institution, through the financial services program, to make securities available to members. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.