Generally, all investments are subject to risk or a combination of different risks. Risk is a deviation from the expected outcome of the investment, which may result in not achieving investment targets. Before making an investment, any investor should pay attention and try to understand risks, related to the investment, as well as their probability to happen as it is important for measuring expected results.
Opposed to traditional bank deposits, investment activities may result in both positive and negative way, moreover, preservation of the investment principal is also not guaranteed. Total value of the investment, including principal and returns is never guaranteed and can change significantly over time or because of certain circumstances. Historical performance of certain investment or asset class cannot ensure similar performance in next periods.
Each investor should understand that all risks, related to the investment, and possible losses are borne solely by the investor. Hence, it is very important to analyse and understand if combination of risks, related to certain investment, is acceptable. There are many factors that can affect measure of the risk, and there are portfolio management tools to measure and mitigate the risk factors. Evaluation of the risks might be conducted independently by the investor or with a help of professional investment advisors.
Market risk, also known as a systematic risk, is a risk that value of the investment might be affected by unfavourable market events, such as macroeconomic factors (interest rates, inflation, recession, currencies, etc.), social or political instability in the region, unforeseen actions of other investors, or other external happenings. These events often lead to changes in asset prices and increased volatility. Usually, using long-term investment horizon together with active asset allocation strategies can partially mitigate exposure to market risk.
Liquidity risk refers to a situation when at the moment of selling the investment there is no sufficient demand on the market. Some types of assets are liquid almost always, however, other investments might face situation, when at time of liquidation of the investment there are no buyers on the market or price level is lower than expected. Periods of illiquidity may lead to prolonged exit from the investment.
Other side of liquidity risk is that when exit from the investment cannot be prolonged and investor is obliged to liquidate the investment at certain moment, it may result in decrease of expected returns and even partial loss of investment principal. Moreover, additional expenses, such as increased sales commissions, extra advertising, investment valuation, etc. also might take place because of liquidity risk.
Higher prices lower the purchasing power of your investment, but if the inflation rate is higher that real rate of return, it might result in direct losses.
Buying an asset in another country or in another currency may lead to an exchange rate risk, when investor can suffer from unfavourable shifts in currency exchange rates.
Political risk is other risk related to local environment, as value of the investment may drop significantly in case of political instability, civil disorder, and other similar actions.
Regulatory or legal risk arise from the fact that local governments and other regulatory bodies have an important effect on economic environment for the investment activities. Stable social and economic environment may positively affect value of the investment and vice versa. When government changes legislation often, e.g. imposes an additional tax on personal income or introduces new taxes in real estate sphere, it worsens investment climate in the region and may lead to reduced real returns from the investment.
Interest rate risk
When interest rates in the economy rise, prices of many assets go down and vice versa. Interest rates also have a significant impact on overall economic activity and borrowing costs.
Specific or concentration risk is risk, which is correlated with global market; this unsystematic risk is specific to certain assets, industry or place. Good news is that this kind of risk can be almost fully eliminated by diversification of investments.
All investment opportunities, which are offered to the investors on Envestio website, pass detailed and unbiased due diligence process, conducted by Envestio’s analytical team that professionally studies projects from financial, legal, technical, marketing and other perspectives.
Operational risks are directly related to the business of Envestio as a company, when due to certain reasons the unlikely event of liquidation of the company would take place.
In case this event is taking place, certain operational and legal actions aimed at preservation of Envestio’s participants’ investments, which should not suffer from this occurrence.
Minimizing and mitigating investment risks
Once investors realize and understand different types of risks, related to their investments, they can use different investment portfolio management strategies in order to avoid or mitigate those. Envestio suggests to conduct this process independently or with a help of professional third-party investment advisors.
While Envestio used all reasonable efforts to obtain reliable information about investment risks from different sources, we make no representation or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. This information should not be treated as a professional investment advice. Envestio strongly suggests to consult professional investment advisors before making investment decisions.
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