When you make smart investments, you have the potential for earning big returns. Investment risks might end up costing you money, though. Use the following tips to spot investment risks that could bring big financial problems.
The Risk of the Market
If you choose to invest in stocks, individual companies, bonds, or products, you face risk based on what happens in the market. The national and international economies can hugely affect the success of the market, which might affect your investment. If you have all of your money in the market, a single crash can wipe you out. Try to spread out your investments to avoid putting so much risk into the market.
The Risk of Default
Default risk is associated with putting your money toward a single company or a pension. When you invest your money in a company’s bond, you usually see a return. Although this kind of investment can bring you more money than simply putting your money into a savings account, you face the risk of the company filing for bankruptcy, which might keep you from getting your return. Similarly, if you invest in a pension, you might be at risk if a company restructures before you collect your return.
The Risk of Inflation
If certain investments bring you a return percentage that is less than the inflation rate, you might not make as much money as you thought you would. If you put your money into a savings account that earns 1 percent each year and the rate of inflation is about 3 or 4 percent a year, you are losing out on about 2 percent of the return that you could make with a different kind of investment.
Work with the financial advisors at Financial Directions, LLC to get helpful advice about the best ways to invest your money. We can help you with risk analysis, college savings, and retirement planning to ensure that your money and your investments work for you. To learn more about our services, call (520) 408-7777.