Yahoo! Finance
10-12-2006, 08:20 AM
Yahoo Finance Investing Strategies
Optionetics.com
OUTSIDE THE BOX: Understanding the Different Categories of Investment Risks
Wednesday October 11, 2:15 pm ET
By Jeff Neal
Many investors simply do not understand all the potential risks that are prevalent in the marketplace. As traders determine their tolerance for risk, they should first understand the various types of risks and be aware of just how to control and minimize each of them.
First is currency risk. Even though most of a typical investor's assets will most likely be in dollar denominated investments, they should realize the risk of currency movement, especially if they own stocks or bonds denominated in other currencies. If an investor purchases an individual stock or bond in another country or a mutual fund that invests in foreign securities, the value of the investment fluctuates based on how many dollars it takes to buy a unit of the foreign currency. Currency movements, which swing day to day based on each nation's economic and political conditions, can therefore significantly impact the gains or losses of a particular investment.
Next is deflation risk where, if prices are falling sharply due to a severe economic contraction, the investor faces the risk that the value of their assets will decline just as sharply. The key to avoiding deflation risk is to make sure not to have too much of your wealth in assets that could adversely be impacted by a deflationary period. For instance, Treasury Bonds provide a good haven from deflation because it is relatively safe to assume the government will always honor its obligations to bondholders.
complete article here... (http://us.rd.yahoo.com/finance/news/rss/story/*http://biz.yahoo.com/opt/061011/opt_15859.html?.v=2)
Optionetics.com
OUTSIDE THE BOX: Understanding the Different Categories of Investment Risks
Wednesday October 11, 2:15 pm ET
By Jeff Neal
Many investors simply do not understand all the potential risks that are prevalent in the marketplace. As traders determine their tolerance for risk, they should first understand the various types of risks and be aware of just how to control and minimize each of them.
First is currency risk. Even though most of a typical investor's assets will most likely be in dollar denominated investments, they should realize the risk of currency movement, especially if they own stocks or bonds denominated in other currencies. If an investor purchases an individual stock or bond in another country or a mutual fund that invests in foreign securities, the value of the investment fluctuates based on how many dollars it takes to buy a unit of the foreign currency. Currency movements, which swing day to day based on each nation's economic and political conditions, can therefore significantly impact the gains or losses of a particular investment.
Next is deflation risk where, if prices are falling sharply due to a severe economic contraction, the investor faces the risk that the value of their assets will decline just as sharply. The key to avoiding deflation risk is to make sure not to have too much of your wealth in assets that could adversely be impacted by a deflationary period. For instance, Treasury Bonds provide a good haven from deflation because it is relatively safe to assume the government will always honor its obligations to bondholders.
complete article here... (http://us.rd.yahoo.com/finance/news/rss/story/*http://biz.yahoo.com/opt/061011/opt_15859.html?.v=2)