As you may know, investing in financial instruments involves risk. The valuation of these financial instruments may fluctuate, and as a result, investors may lose more than their initial investment. Therefore it is advisable to invest with money you do not immediately need. When making the decision to start investing, it is important to be well prepared and to engage in trading in financial instruments you fully understand. Before you start investing, you should think about your investing objectives, your expectations and the possible outcomes.
Please see below an overview of the most common risks of investing, but please be aware that specific risks of financial instruments are not included in this overview.
Market risk is the risk that your investment goes up or down in value because of micro or macro economic developments. For example, declining economic growth, can cause the value of a company to go down, which in turn will render shares in the company less valuable.You can partly reduce this risk by having a well diversified portfolio.
Interest rate risk
Interest rate risk is the risk that the value of your investment will fall, if the market interest rate rises. Rising interest rates can lead to lower consumer spendings and higher interest costs for companies. This could lead to certain pressure on the profits of companies. A rise in interest rates can therefore have a negative effect on the value of shares, bonds and investment funds that hold shares and bonds.
This is the risk that the company or country in which you are invested is unable to meet its financial obligations. For example a company can no longer pay its interest or defaults on a loan. This could lead to worthless investments.
Liquidity risk is the risk that your investments cannot or can barely be traded on an exchange. In that case your investments are not liquid or illiquid. This means that you (temporarily) cannot sell your investments when you want to; you cannot freely divest your positions, or you get a worse price for your investments when you sell them.
Currency risk arises when you invest in a currency other than the euro. If the exchange rate of that other currency falls in relation to the euro, it has a negative impact on the value of your investments in that other currency.