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Ibara, Abeokuta, Ogun State

RISKS INVOLVED WITH INVESTMENT

RISKS INVOLVED WITH INVESTMENT

The biggest risk is not taking any risk…in a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks (Mark Zuckerberg)

Nothing good comes easy. Every package that has an advantage also has a disadvantage and this does not exempt investments. As much as investment is a sure way to generate wealth, it is also a sure way to lose money. It all depends on how one plays the game. There are certain risks involved with investment and some of them are listed below.

risk and return

1. Market risk: this is the risk of decline in value of investments because of economic developments or other factors that affect the market. Risks in this category can be classified into three namely equity risk, interest rate risk, and currency risk. Currency risk applies when one owns investment in foreign currencies. It follows that the value of one’s investment depends on the value of the currency at a given time. Interest rate risk applies to depreciation in one’s investment largely because of changes in interest rate. Lastly, equity risk is the risk of loss because of a drop in the market price of shares.

2. Liquidity risk: this is the risk associated with the inability to sell one’s investment at a fair price when the need arises. Some have to sell at a lower price and some companies demand a penalty for persons who want to opt-out of investment plans before the agreed date.

3. Inflation risk: this is the risk that inflation will reduce the value of one’s investment at the time of return payment. And for those living in Nigeria, this is a valid risk in times like this.

4. Credit risk: this is the risk that the government or investment company would not be able to pay back the principal and interest because of financial difficulties that arise in the discharge of their duty.

In spite of all these risks, investment remains a sure path to financial success. Most times you win, some times you lose. And if you are in doubt, consider speaking with a financial expert. Remember, “he who is not courageous enough to take risks will accomplish nothing in life.” (Muhammad Ali)

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