So you want to invest but not risk losing all the money you’ve worked so hard to earn? Well, investing does come with its risks but fortunately there exists certain assets that allow you to have your cake and eat it too by combining lower risk levels with moderate returns which I want to share with you now but before I get into the types of investment that have low risk, I want to briefly discuss what risks you face when investing.
Investment risk is the likelihood that losses will occur relative to the expected profit from any investment. That simply means that investment risk is the measurement of the uncertainty that exists with each investment.
Generally, investments that have high risk have the potential to pay more interest while investments with low risk have the potential to pay lesser interest. Some common risks include market risk, interest risk, liquidity risk, concentration risk, and inflation risk among many others.
Market risk is the risk that exists because of events that take place and affect the entire market. For example, government policies can affect the market either positively or negatively. When such happens, the value of your investment can either become high or low.
Another type of risk that exists is the interest rate risk. This is the potential for an investment to change in value because of a change in the interest rate. This means that if an investment has a fixed interest rate and another similar investment has a higher interest rate, the value of the one with the fixed-rate may drop because of the alternative.
The final type of risk is inflation risk. When there is inflation, money loses value and the purchasing power of money reduces. That is, $100 before inflation is worth more than the same amount after the cost of living increases and it’s possible for the value of your investment to fail to keep up with inflation resulting in portfolio devaluation.
Now, you may be wondering that makes an investment high or low risk and that’s a great question. In fact, you need to understand the difference between the two to be able to make low-risk investments that can make you rich. Risk means different things to different people but when it comes to investing, the risk is usually measured as the…