Common Risks When Investing

Before you participate in a financial investment, it is important to understand the types of risk involved. Six common types of risk include:

Market Risk

The chance investment returns will be affected by changes in the overall level of the stock market.

Interest Rate Risk

The chance investment returns will be affected by changes in interest rates.

Inflation Risk

The chance inflation will affect the return on an investment in real dollars.

Foreign Exchange Rate Risk

The chance that a change in the value of a foreign currency relative to the U.S. dollar will negatively affect a U.S. investor's return.

Business and Financial Risk

The risk associated with a particular industry or firm. This includes anything that can affect the value of a firm, but not affect the whole market, such as the mix of debt and equity used to finance a firm or property or the market for a company's products.

Portfolio Risk

The aggregate risk level of all your holdings relative to each other, including any investment overlap with individual securities held.

High Risk and Speculative Investments

There are many "investments" that are considered high risk or speculative including:

• Antiques
• Art
• Coins
• Collectibles
• Commodities
• Futures
• Gambling activities
• Initial Public Offerings (IPOs)
• Junk bonds (individual bonds)
• Limited partnerships
• Lottery tickets
• Options
• Penny stocks
• Precious metals
• Racehorses
• Tax liens
• Anything "guaranteed"

Many financial professionals recommend steering clear of speculative types of investments, including the ones listed above. If you still desire to invest in one or more of them, make sure it is with money that is not needed.