Here are 14 of the most common types of investment risks.

1. Market Risk

The risk of investments declining in value because of economic developments or other events that affect the entire market.

2. Equity Risk

Equity risk is the risk of loss because of a drop in the market price of shares.

3. Interest Rate Risk

It is the risk of losing money because of a change in the interest rate.

4. Currency Risk

It is the risk of losing money because of a movement in the foreign exchange rate. 

5. Liquidity Risk

With certain investments, it may not be possible to sell the investment at all or you may have to pay a hefty fee. 

6. Concentration Risk

The risk of loss is due to the fact your money is focused on one investment or type of investment.

7. Correlation Risk

Is a term that describes two investments (variables) moving in the same direction either up or down.

8. Counterparty Risk

Counterparty risk is the probability that the other party in an investment, may default on the contractual obligations.

9. Credit Risk

The risk is that the government entity or company that issued the Sukuk will run into financial difficulties and won’t be able to pay the profit share or repay the principal at maturity. Credit risk applies to investments such as sukuks.

10. Reinvestment Risk

The risk of loss from reinvesting principal or income at a lower profit share.

11. Inflation Risk

The risk of a loss in your buying power because the value of your investments does not keep up with inflation (Consumer Price Index). Inflation erodes money’s buying power over time; the identical quantity of money will buy fewer goods and services.

12. Horizon Risk

The risk that your funding horizon might also be shortened because of an unforeseen event, for example, the loss of your job. This may also pressure you to sell investments that you were looking to hold for the long term. If you must sell at a time when the markets are down, you may lose money.

13. Longevity Risk

The risk of outliving your investments and savings. This risk is particularly relevant for people during retirement or who may be nearing retirement.

14. Foreign Investment Risk

The risk of loss when investing in foreign countries. Here you face political and economic situations that do not necessarily exist in South Africa.

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