Investment risks refer to the potential for loss or underperformance associated with an investment. These risks can arise from various factors, including market volatility, economic shifts, interest rate changes, creditworthiness of issuers, liquidity constraints, and geopolitical events. Key types of investment risks include:
1. **Market Risk**: The risk of losses due to fluctuations in market prices, which can affect the value of investments regardless of the underlying fundamentals.
2. **Credit Risk**: The risk that a borrower will default on a loan or other financial obligation, leading to losses for the lender or investor.
3. **Interest Rate Risk**: The risk that changes in interest rates will negatively impact the value of fixed-income investments, such as bonds.
4. **Liquidity Risk**: The risk of not being able to sell an investment quickly enough to prevent a loss or to cover expenses.
5. **Concentration Risk**: The risk associated with having a significant portion of investments in a single asset or sector, which can amplify losses.
In essence, understanding investment risks is crucial for making informed decisions and managing a portfolio effectively to achieve financial goals while minimizing potential downsides.
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