In the investment game, there is always risk. Nothing is a safe bet in the financial world, other than counting on the possibility – but not the guarantee – that something might go awry. As such, it’s important to know that there’s more than one type of risk.
A good financial advisor Perth will use different terms to speak of different types of risk. Each of it comes with its own nuances that make them distinct from the others. To understand the types is to have a better assessment of what information is presented.
Let’s break down the terminology that’s being used. You never know how useful any of these might be in conjunction with a financial advisor Perth.
First, let’s look at the term “risk” itself. This represents a two-sided uncertainty. Good and bad are both possible outcomes. It can be high but potentially profitable, or low but predictable. Be sure to choose a level of risk that matters based on your circumstances.
Another term to know is danger. This is a one-sided uncertainty. It’s also problematic because what it damages isn’t always easily quantified or aggregated.
Finally, there’s the one-sided term opportunity. It is the opposite of danger, representing positive uncertainties. Again, the results tend to be the sort you can’t put into numbers.
Now, let’s move on to the types of risk that you’re likely to encounter in the financial game.
One that most people would be familiar with is the credit risk. This is when there is uncertainty because of an external entity unable to keep a promise or fulfil their end of a transaction. In simple terms, it’s when you can’t reliably expect the income.
Another type is the market risk. This is tied to prices in markets, whether for stocks, bonds, or whatnot. This is the risk associated with the chance of them going up radically or dropping like a hot potato.
There is also political risk. This is when the problems you encounter are tied to actions of political bodies, such as the government.
Funding risk is when you don’t have enough certainty that you can acquire sufficient funds.
You might also have the reputational risk. This is when your uncertainties are the result of how you or your entity might be perceived.
You also need to consider liquidity risk. This is a problem that is tied to the ability to make the transaction when desired, or if it becomes necessary.
Finally, there is the operational risk. This covers uncertainty caused by factors other than market or credit risk.