Many investors are familiar with concept of tolerance to risk, as factor which is necessary for estimating by consideration of investments. They are inclined think of risk only from point of view probability to lose enclosed money. However, in world of investments, the risk is defined in such manner that the actual income of the enclosed investments will differ a little from expected profitableness. The actual income can depend on factors, and the general risk – is nothing more than measure of a variation in exchange for the profit, received of all sources. Sometimes the risk is maybe obvious, but it is sometimes difficult to distinguish and measure it.
The general risks of scheduled investments
The basic general risks of scheduled investments concern those factors which lay outside the separate companies but which as a whole influence set of investments in market. The market risk can become operating tool of political, social or economic events and to change preferences of investors. For example, the market risk exists when the investment climate changes in the worst side. Result of such expectation will be decrease have arrived as whole, and falling of prices for shares of company.
Second general factor which can strongly affect business of company, percentage risk – fluctuations of general level interest rates is. The bond market is especially sensitive to percentage risk in that instant when prices of bonds tend to move in a direction opposite from interest rates.
The following factor of the general risk for investments can become influence of inflation (general rise in prices) or deflations (the general falling of a price level) on the investment. It reflects uncertainty of a price rod during investment process, and in particular, inability of those or other investments to go in a level with inflation. For example, if investments return 3% a year, and inflation in the period possession composes 4% a year the investor loses on investments.
Unlike the general risk, there is certain risk that some part of the general risk is unique for firm, branch or property (in case of investments into real estate). Specific types of risk, as rule, are subdivided into business-risks and financial risks.
Business – is risk connected with enterprise (or branch in which enterprise functions). Investment planning measures capacity of company to carry out of the obligations to investors in maintenance of comprehensible profitableness for the last. It’s considered, that all types of companies have similar business-risks.
But among the similar enterprises there are also distinctions:
- in management;
- in working costs;
- in market possibilities.