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Dianne Williams, MBA

Certified Retirement Counselor®

Since 1983 in the financial services and investment industry

 

Retirement Pathways, Inc.

4965 U.S. Highway 42, Suite 1000

Louisville, KY 40222

 

Phone:  502-797-1258 

 

Email: dianne@retirementpathways.com

Website: www.retirementpathways.com

May/June 2019

Anticipate Risks to Your Portfolio

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When investors work with a financial professional to create an investment strategy, they typically determine their financial goals, level of acceptable risk and time horizon. It is the second factor — risk — that includes a variety of potential challenges you should address when creating and maintaining your strategy.


Prominent Risks
Investors may be aware of market risk, which is present in any security not backed by the United States Treasury. Market risk can cause securities to lose value, either due to specific news about the company whose stock or bond you own, or because of volatility in a sector or the general stock market. That’s why you’re always cautioned to discount past performance when trying to gauge future results when considering equity investments. The same caution about past performance also applies to bonds.


Prominent risks involving bonds include inflation risk and interest rate risk. Inflation risk is simply the threat that low-growth investments won’t keep pace with inflation. Interest rate risk occurs when rates rise and a bond’s value declines below its face value because newer bonds offer higher yields.


Other Risks
Your investments may be subject to a variety of other risks. Both stocks and bonds can experience credit risk. If, for example, a company is on shaky financial ground, it could hurt both the firm’s stock price and its ability to keep its promise with a bond.


Currency risk occurs when the value of one currency falls versus another. This can hurt stock performance if the company does business in the country or region with the poorly performing currency. For example, if your foreign stock purchased at par achieves a return of 10% in a currency that now pays 90 cents to the U.S. dollar you would effectively earn 9%.


Bonds can also experience liquidity risk when the seller has difficulty finding a buyer. If you own foreign investments your holdings could be subject to political risk, which can affect both stock prices and the ability of affected countries to pay their debt.


Learn more about the risks in your investment portfolio by regularly reviewing your holdings and your strategy with a financial professional.


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* Securities offered through American Equity Investment Corporation. Member FINRA/SIPC. 4222 Grant Line Road, New Albany, IN 47150. Investment advisory services offered through American Capital Management, an SEC Registered Investment Advisor. Retirement Pathways, Inc. is independent of American Equity Investment Corporations and American Capital Management.

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