Common Types of Investment Risk and How to Avoid Them

people looking at graphsWhen it comes to investing money, a certain amount of risk should be expected. Common investment asset such as capital bonds, stocks and mutual funds lose or add to their value based on the market conditions and this is an important issue to take into consideration before landing an investment.

People who are looking for investment opportunities in the UK can collaborate with an FCA regulated advising company for support and recommendations, before turning to investment companies, such as Amyma.

Here are some common risks related with investment opportunities in the UK and how to make the best out of them.

What is Investment Risk?

While most people think of risk as something negative, this is not always the case. Risk can be defined as deviation of an expected outcome and as such it can lead to positive or negative consequences. With investing, in particular, risk is always involved. However, there are many tools to manage risk and optimise financial outcomes.

Types of Investment Risk and Mitigation Strategies

Investment risk can be systematic or non-systematic. Systematic risk, commonly known as market risk, is directly related to market dynamics. In simple words, investments depend on micro-economic factors affecting the market such as inflation, recession, currency, interest rates and politics.

While short-term market prices are difficult to predict, long-term prices and their variations are more accurately predicted. This makes long-term investments less risky, since investors can develop an active asset allocation strategy.

Unsystematic or specific risk, on the other hand, is independent from market returns. This type of risk is particular to a specific company or industry and can affect investments. For instance, a natural disaster, a bad management decision or product failure can cause individual investment assets to decrease and lead to investment failure. Again, this type of risk can be significantly eliminated with diversification.

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Finally, the risk of investment fraud is more real than ever and people who are looking for investment opportunities in the UK are advised to always carry out research on investment companies and investment professionals as well as types of debt instruments before investing their money.