Risks of Investments

Stock risk.

As a group, stocks generally move up and down in value more than any other type of investment in the short-term.

People are usually afraid of purchasing stocks because they hear about bear markets, corporate scandals and stock market crashes.

But this should be a concern only to investors who need their money back within a few years.

In fact, over the longer-term, you stand a greater risk of losing money if you don't invest in stock.

Unlike money market securities, stocks are high risk investments in the short-term but are lower risk investments in the long term.



Bond risk.

Besides interest rate risk, bonds have default risk.

Default risk refers to the possibility that the borrower will not make the promised payments.

This risk is almost non-existent for government bonds, but for many other issuers such as private companies, the risk of default is very real.


Money market risk.

Beware of inflation.

The longer you leave your money in fixed deposit, the higher the risk of inflation eating away the purchasing power of your money.

Money market investments are safest when the money is needed in the short-term.

The very same safe investments become high risk the longer they stay invested.


Stocks are on the opposite track. They are high risk investments in the short-term, but are lower risk investments in the long term:

Fixed deposit
1yr = Low risk 10 yrs = High risk

Stocks
1 yr = High risk 10 yrs = Low risk