Investing Risk

Investing is an exciting and action-packed idea that for a long time has make people excited about it. Even if you have little money to invest, there is a possibility for you to build wealth through investing.

However, though it is possible for you to make money through investing, it is possible to lose as well. Understand the whole question of risk is thus very important. Risk is in the eye of the beholder. Some people think that the sole risk they face in investing is directly related to profitability. If you make a profit, you beat the risk; if you have a loss, you lose.

Experienced investors understand that investing is a number game. You are going to have some losses along the way, and the key to succeed is creating profits that are higher than the occasional loss, and for which the dollar amount is much greater.

Here are a number of different risks every investor face when investing:

Market Risk

This is the risk that price will decline reducing the value of the investment with changing market condition, including the forces of supply and demand and interest rate changes

Knowledge and Experience Risk

The risk involves the combination of two things: your knowledge and experience risks. These include your investing background as well as the collective research you have performed for yourself in the past - performing online searches and studying books or magazines. Knowledge and experience ultimately determines how you view the markets and how you approach the selection of your investment

Foreign exchange risk

When the investment is in one currency (e.g USD) , and is different from the functional  currency of the investor (e.g Singapore Dollar), the investor is exposed to foreign exchange fluctuation.

Inflation risk

Increase in the cost of living (i.e. inflation) can erode the purchasing power of money. For investor, inflation requires ever-higher returns on your investment to offset the effects of inflation.