Types of Risks Faced by Investors (Essay Sample)

Types of Risks Faced by Investors Student’s Name Institutional Affiliation Course Instructor Due Date Types of Risks Faced by Investors Investing can be an incredibly lucrative pursuit, yet it is important to understand the associated risks in order to maximize potential returns. Market and political risks constitute two of the most common and significant dangers that investors should be aware of. Market risk is associated with changes in the price of a security or market index, while political risk is associated with alterations in government policy. By understanding and managing market and political risks, investors can better position themselves to achieve their financial goals. Market risk is the uncertainty associated with fluctuations in the price of a security or market index. Stocks, mutual funds, and other investments can all be exposed to this risk (Tchamyou et al., 2018). It is important to note that it is impossible to completely eliminate market risk, but it can be reduced through diversification of assets and limiting the amount invested in any one asset class. This approach can help to safeguard primary savings from any potential losses. Political risk involves potential ramifications from a change in government policy that can lead to a decline in the value of investments. According to Hinnebusch (2020), war or sanctions imposed on a country can have a devastating effect on investment performance in that region. Companies that conduct business in these countries may also be adversely affected by alterations in government policy. Therefore, investors should conduct research to understand which countries or sectors are susceptible to political risks before committing funds to them. In order to successfully minimize the risks associated with investing, investors must take the time to understand both market and political risks before mak...