Risk associated with Investments

Risk associated with Investments

Risk is the integral part of every investment. There is not a single investment without risk. We often look for very safe, assured and high return investment. But in reality, there is not a single such type of investment avenue exist. There are many theory exist to measure and understand risk in many ways. Common investors often feel very difficult to these types of risk. It is financial advisor’s moral responsibility to spread awareness among the investors about it. Today, we are going to discuss the two basic forms of risk mentioned by William Bernestine, an investment manager. He has tried to explain to basic form of risk for investor’s better understanding of risk. According to him, there are two main type of risk :

1. Shallow Risk

2. Deep Risk

Shallow Risk:  Shallow risk is a temporary drop in any asset’s market value. It is associated with every asset class. The great investment guru Benjamin Graham referred to such an interim decline as “quotational loss.” It is as inevitable as weather. These type of losses are not permanent in nature. You can’t invest in anything other than cash without being hit by falls in price. Even cash have also inflationary risk.

Deep Risk: Deep risk is an irretrievable real loss of capital, meaning that after inflation you won’t recover for decades—if ever. It means, the investor should more careful about these types of risk.

After the long data mining and research, we have got some reasons for such type of risk.

1.   Inflation

2.   Deflation

3.   Confiscation

The best investment avenue against inflation is stock market investment during long term. They are guaranteed to expose you to price drops in the shorter run. Most investors can’t survive the pain of plunging prices of stocks in market. It has sure shallow risk.

Deflation, the persistent drop in the value of assets, is extremely rare in modern history. It has hit Japan but almost nowhere else in the past century, thanks to central banks that print money to drive up prices.
The best insurance against deflation is long-term government bonds. Diversifying your portfolio into international stocks also helps.

Confiscation—a surge in taxation by the government as happened to bank depositors in Cyprus—is more common. Your best option is to own real estate abroad, since governments rarely reach beyond their boundaries to seize assets of law-abiding citizens.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com