Why your Investments can go down and what can you do about it?

1. Market risk: Market risk is the risk that the value of your investment will go down due to market-wide factors such as economic conditions, political events, or changes in interest rates. Market risk affects all investments, but it is particularly relevant to stock market investments, where prices can fluctuate wildly in response to news and events.

Mitigation: Market risk can be mitigated through diversification. By investing in a variety of stocks, bonds, and other assets, you can spread your risk and reduce the impact of market-wide factors on your portfolio.

2. Company risk: Company risk is the risk that the value of your investment will go down due to factors specific to the company, such as poor management, declining sales, or legal issues. Company risk is particularly relevant to individual stocks, where the fortunes of a single company can have a significant impact on the value of your investment.

Mitigation: Company risk can be mitigated by conducting thorough research on the companies in which you invest. Look for companies with strong fundamentals, such as a solid financial position, a competitive advantage, and good management.

3. Industry risk: Industry risk is the risk that the value of your investment will go down due to factors specific to the industry in which the company operates, such as changes in consumer behavior, regulatory changes, or competition. Industry risk is particularly relevant to sector-specific investments such as exchange-traded funds (ETFs) or mutual funds.

Mitigation: Industry risk can also be mitigated through diversification. Invest in a variety of industries to reduce your exposure to industry-specific factors that could affect your portfolio.

4. Inflation risk: Inflation risk is the risk that the value of your investment will be eroded over time due to inflation. Inflation reduces the purchasing power of your money, meaning that your investment may not be worth as much in the future as it is today. This is particularly relevant to long-term investments, where the effects of inflation can be significant.

Mitigation: Inflation risk can be mitigated by investing in assets that offer a hedge against inflation, such as real estate, commodities, or inflation-protected securities.

5. Currency risk: Currency risk is the risk that the value of your investment will be affected by changes in exchange rates. This is particularly relevant to international investments, where changes in the value of foreign currencies can have a significant impact on the value of your investment.

Mitigation: Currency risk can be mitigated through currency hedging strategies, such as purchasing currency forwards or options. Alternatively, you can invest in a hedged fund or ETF that uses currency hedging to manage this risk.

6. Liquidity risk: Liquidity risk is the risk that you may not be able to sell your investment when you need to or at a price that you consider reasonable. This is particularly relevant to individual stocks, where trading volumes can be low, and it may be difficult to find a buyer or seller.

Mitigation: Liquidity risk can be mitigated by investing in assets that are highly liquid, such as exchange-traded funds (ETFs), mutual funds, or large-cap stocks. Alternatively, you can invest in assets with a lower liquidity risk, such as bonds or real estate.

7. Political risk: Political risk is the risk that the value of your investment will be affected by political events, such as changes in government policies or political instability. Political risk is particularly relevant to international investments, where changes in government policies or political events in other countries can have a significant impact on the value of your investment.

Mitigation: Political risk can be mitigated by diversifying your investments across different countries and regions. You can also invest in assets that are less affected by political events, such as large-cap stocks or index funds.

8. Credit risk: Credit risk is the risk that a borrower will default on their debt obligation, resulting in the loss of the principal or interest payments due to the investor. This risk is relevant to fixed-income investments such as bonds, where the creditworthiness of the borrower can affect the value and performance of the investment.

Mitigation: Credit risk can be mitigated by investing in bonds or other fixed-income investments with high credit ratings or by diversifying across a range of issuers and maturities.

To invest successfully, it's crucial to understand the various types of risks involved and to take proactive measures to manage them effectively. By developing a deep understanding of the risks associated with investing, you can make informed decisions that align with your financial goals and protect your downside.

Alternatively you can invest with Saay Finance where we constantly monitor risks such as Market Risk, Inflation Risk, Liquidity risk, etc. and hedge you against them through the use of data-driven algorithms and machine learning. Sign up for our waitlist here.