When engaging in asset management, risk is inevitable. To achieve returns, it is essential to understand the risks involved and control them effectively. This time, let’s consider six risks that can significantly impact your returns.
- Price Fluctuation Risk
This is the risk that the price of an investment product will fluctuate. Various factors, such as domestic and international political and economic conditions, changes in supply and demand in the market, and more, can influence this risk.
For example, some products, like cryptocurrencies, are characterized by large price swings. - Currency Fluctuation Risk
This is the risk that the value of assets in foreign currency-denominated investment products will change due to fluctuations in exchange rates. - Interest Rate Fluctuation Risk
This is the risk that the price of financial products will fluctuate due to changes in interest rates. Interest rate changes can directly or indirectly affect almost everything in the economy, not just investment products. - Credit Risk
This refers to the risk of default, where the borrower fails to meet their obligations. Deteriorating national finances, declining corporate performance, or bankruptcy can lead to the inability to repay the principal and interest on bonds. In the event of a default, stocks may become worthless, or chain bankruptcies could occur. - Liquidity Risk
This is the risk that you cannot sell an investment product when you want to convert it into cash.
Real estate, for example, is a prime example of a low-liquidity asset. While real estate generally has high asset value and the advantage of being a tangible asset, it has the disadvantage that it cannot be converted into cash if there is no buyer. - Country Risk
This is the risk that economic instability in the country where you are investing, due to political instability or conflicts, will disrupt your investments. In times of war, local financial institutions might impose withdrawal restrictions, or sudden changes in laws might leave foreign investors at a disadvantage.
When managing your assets, it is crucial to be aware of these six risks at a minimum and to consider countermeasures in advance.