RISKS 2.0

Question 1

What is Market Risk?

Answer 1

The risk that overall market movements affect the value of the security

Question 2

What is Credit Risk?

Answer 2

The risk that the issuer fails to make interest or principal payments.

Question 3

What is Inflation Risk?

Answer 3

The risk that rising prices will erode the real return of a fixed income investment

Question 4

What is Interest Rate Risk?

Answer 4

The risk that changes in interest rates will reduce the value of the investment.

Question 5

What is Systemic Risk?

Question 6

What is NON systemic Risk?

Question 7

What securities are affected by Market risk?

Answer 7

Affects all securities but especially common stocks, stock mutual funds/ETFs, Options and derivatives

Question 8

What securities are NOT (or are minimally) affected by market risk?

Answer 8

Non-marketable securities such as US Treasury Bonds, Series EE Bonds, bank products that are FDIC Insured (CDs, Savings/Check accounts) Fixed annuities (Insurance contract that guarantees returns and are not directly invested in securities). T-Bills (short term), DPPs have low market correlation

Inverse ETFs go up when the market goes down, DPPs are non correlated meaning they do not have a correlation to the market performance.

Question 9

What securities are affected by Credit risk ?

Answer 9

Affects Corporate bonds (junk), Municipal bonds (especially Rev), Mortgage Backed Securities.

Question 10

What securities are NOT (or minimally) affected by credit risk?

Answer 10

Minimally affects US treasury securities (the best credit) or US backed agency securities (GNMA), FDIC insured products (Banks CDs), TIPS (Treasury inflation protected Securities are backed by the government and come with inflation protection), AAA rated bonds (which are some of the BEST)

Question 11

What securities are affected by Inflation risk?

Answer 11

Affects: Products with FIXED interest rates such as Fixed Rate Bonds, CDs, and Money market instruments

Question 12

What securities are NOT (or minimally affected) by inflation risk?

Answer 12

Minimal affected: Common stock, Stock Mutual fund/ETF, Variable rate products such as TIPs, Commodities (GOLD), REITs (property values tend to rise), floating rate bonds.

Question 13

What securities are affected by Interest rate risk?

Answer 13

Affects: Long term bonds, Preferred stock, and Bond Mutual fund/ETFs.

Question 14

What securities are NOT (or minimally affected) by Interest rate risk?

Answer 14

Minimal affected: Short term bonds/T-Bills, Floating rate Notes, Money Market Funds (short term), Bank Savings accounts, CDs, (Short term)