Risk of Loss


All investment programs have certain risks that are borne by the investor.  Our investment approach constantly keeps the risk of loss in mind. Investors face the following investment risks:

  • Interest-rate Risk:  Fluctuations in interest rates may cause investment prices to fluctuate.  For example, when interest rates rise, yields on existing bonds become less attractive, causing their market values to decline.
  • Market Risk:  The price of a security, bond, or mutual fund may drop in reaction to tangible and intangible events and conditions.  This type of risk is caused by external factors independent of a security’s particular underlying circumstances.  For example, political, economic and social conditions may trigger market events.
  • Inflation Risk:  When any type of inflation is present, a dollar today will not buy as much as a dollar next year, because purchasing power is eroding at the rate of inflation.
  • Currency Risk:  Overseas investments are subject to fluctuations in the value of the dollar against the currency of the investment’s originating country.  This is also referred to as exchange rate risk.
  • Reinvestment Risk:  This is the risk that future proceeds from investments may have to be reinvested at a potentially lower rate of return (i.e. interest rate).  This primarily relates to fixed income securities.
  • Business Risk:  These risks are associated with a particular industry or a particular company within an industry.  For example, oil-drilling companies depend on finding oil and then refining it, a lengthy process, before they can generate a profit.   They carry a higher risk of profitability than an electric company, which generates its income from a steady stream of customers who buy electricity no matter what the economic environment is like.
  • Liquidity Risk:  Liquidity is the ability to readily convert an investment into cash.  Generally, assets are more liquid if many traders are interested in a standardized product.  For example, Treasury Bills are highly liquid, while real estate properties are not.
  • Financial Risk:  Excessive borrowing to finance a business’ operations increases the risk of profitability, because the company must meet the terms of its obligations in good times and bad.  During periods of financial stress, the inability to meet loan obligations may result in bankruptcy and/or a declining market value.