Recognize Various Investment Risks To Avoid Losses! Recognize Various Investment Risks To Avoid Losses!, Every investment is fraught with danger. The potential reward is precisely proportionate to the risk. The higher the possible profit, the higher the risk of investment, and vice versa.

Investment risk is the possibility of losing money on an investment. Loss occurs when investment returns do not meet the expected or predicted profit aim. Every investment must accept this requirement.

There are no exceptions; all investments provide a complete return with risk. Stock investment risks, gold investment risks, bond investment risks, mutual fund investment risks, and other investment hazards must all be avoided.

Recognize Various Investment Risks To Avoid Losses!

Based on their risk tolerance, investors are classified as aggressive, moderate, or cautious. Aggressive investors are willing to take on as much risk as possible in order to maximize their returns.

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Conservative investors are entirely risk-averse or risk-averse, whereas moderate investors are alert and careful about investing risks.

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As a result, before beginning to invest, determine your risk profile in order to locate an appropriate investment vehicle.

It should be emphasized that no single investment vehicle is appropriate for everyone. Every investor should be familiar with the investment risk profile of the instrument they chose.

Rather than being enticed by the degree of return promised by an investment. When deciding where to invest, it is critical to consider the degree of risk you may encounter.

1. Market Danger

Market risk is the possibility of losing money as a result of a rise or reduction in Net Asset Value (NAV) owing to changes in financial market sentiment, such as stocks or bonds. This market risk frequently results in capital losses for investors.

This risk, which is also known as systemic risk, cannot be avoided. As a result, every investor must be prepared for this sort of investing risk.

Changes in market sentiment can be induced by a variety of factors, including civil upheaval, economic slump, and political changes.

A student rally in 2019 against the Criminal Code Bill, the amendment of the KPK Law, and the Land Bill is an example of a market investment risk scenario.

The two-day demonstration led the rupiah to weaken somewhat. The value of the rupiah decreased to 14,135, after previously being constant below 14,100. This is one sign of a shift in market attitude.

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When this circumstance arises, you do not need to worry and withdraw your investing assets right away. This is because a loss or gain in value like this is not generally lasting.

2. Liquidity Concerns

Liquidity risk is a risk that can hurt an investment if assets are difficult to convert into cash within a specified time frame. For example, when a party is unable to pay its commitments in cash, despite the fact that the obligation is due.

Even though these parties have assets that are comparable to the commitments they must pay, if these assets cannot be turned into cash promptly, they are illiquid.

This is common when it is tough to locate purchasers. This danger is distinct from a drop in asset values, in which the market regards the asset as having no value.

Meanwhile, the difficulty in selling assets is due to the difficulties in finding purchasers, notwithstanding the assets’ high worth. As a result, liquidity risk is more probable in emerging markets.

3. The Risk of Inflation

Inflation risk, also known as purchasing power risk, is a type of investment risk induced by the likelihood of changes in the value of cash flows in the economy.

Changes in buying power induced by the effect of inflation in the future As we all know, when there is inflation, the value of the currency falls.

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Investors that invest in assets that are not inflation-resistant, such as cash values, will bear the risk of this form of investment.

4. Concentration Danger

Concentration risk occurs when you invest solely in one instrument. Diversification is recommended for investors to prevent concentration risk. Because if your investment Bussines is just in one asset, if that instrument fails, you will lose all of your money.

When you divide your investment into many instruments, the situation changes. When one instrument loses, another instrument may gain the loss.

Author: Irdansyah
I'm a regular contributor to IRDANSYAH commander, and in my business blog, my team and I share tales on the experience of starting a business from zero, how it feels to build a startup, and how to scale-up.