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Before investing your lifetime fortunes into something, you need to assess the condition of what you are planning to get into. Otherwise, you will be wasting your lifetime blood and sweat into something that is not worthy of it. Personal investments are supposed to generate you income not the other way around. In this article, things and factors that you need to put into consideration before you divulge your money into something will be discussed, as well as the ways on how you can deal with it.
First is the default risk. This is the most crucial and the hardest risk to minimize. It talks about the event in which companies or individuals will be unable to make the necessary payments on their debt. To reduce such risk, most lenders charge an extra amount or interest based on the debtor's level of risk. So, before investing, be sure to check the company's deposits and debts.
Next is the business risk. It is the risk associated with the level of performance of the company or business itself. A company's share prices may drop once it is unable to deliver the required or promised performance in the public offering, hence pulling your share's market value down as well. In the event of this, a solution can be made through merging of the company with other companies to protect the welfare of the affected company.
Another risk is called the liquidity risk. In the corporate world, liquidity refers to the accessibility of money. An investment shouldn't only be a money making one, but also reasonably liquid. An investment may be categorized as liquid if it can be converted into cash readily.
One more risk is called the inflation risk or the purchasing power risk. This happens when the money that you put out will not be coming back to you in an increased amount. It may even be lesser than the original money you put out in an investment. As the inflation rate increases, the interest payments decrease gradually. Safe or fixed investments are likely to be affected by this risk as compared to the riskier investments.
Next is the interest rate risk. Fluctuation of interest rates is nowadays very prevalent. In connection to this, fixed income securities will be affected disturbed as well as the value of your investment. The lower the yield and value of your investment is, the lower the value of your security gets.
A very interesting risk is the political risk. The government highly affects the economy. Legislations and other government policies may affect the trade and interest of some companies. A change in government automatically affects the status of different companies, which you may have plans to invest in.
Last, but absolutely not the least risk involved in investment personal, is the market risk. This risk is generally because the very unstable nature of stock prices. The economy changes direly. Natural disasters and recession are good examples of events that may greatly drift the economy to a drastic change.
In all of the risks mentioned, it is important to assess the existence of every kind of risk carefully, and its intensity in any investment opportunity that you may consider. However, this shall not inhibit you into taking that step in investing. Always remember that risks are unavoidable. It is a price you should pay for attaining an economic status that you always dreamed of. So examine your alternatives and assess the nature of the company you are investing well. Careful assessment and proper balance of risks and benefits will yield you success in investment.
SOURCE : http://goarticles.com/article/Dealing-with-Risks-in-Personal-Investments/5490560/
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