Types of Risks in Investments and Asset Allocation

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Definition
Investor tends to make investment based on personal preferences regarding risk tolerance and investment horizon. Risk tolerance is the amount investment that the investors willing to lose for the greater expected returns. Investment horizon is the timeframe set by the investor to achieve their investment objectives. There is several investment strategies such as asset allocation that can assist investor to makes a better investment decision. This decision can cater the needs to balance the risk and return by the individual investor in which assisting them to adjust the portion of investment in each of the portfolio invested. However, a degree of risk and return might be vary according to the different asset types. The idea suggest that different asset types will have different performances depending on market and economic condition. Diversification has become the efficient method to reduce the degree of uncertainty which result in decline of overall risk.

Type of Risk in Asset Allocation
Risk Description
Incompetence of fund manager Since the nature of asset allocation is spreading your investment in many portfolio. The individual investor will heavily rely on the performance of the fund manager. Usually the investor will notify the incompetence when it was too late.
Incapable to utilize the portfolio performance Asset allocation involved in spreading of investment in different portfolio. The investor might not be able to utilize the profitable portfolio when the other portfolio is at loss.
Incapable to maximize the profit Since rebalancing is essential in asset allocation, the investor might need to rebalance the portfolios even few of them is not finish its growth yet.
Downfall of assets class There is myt...

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... Fitch rating and Standard&Poor. The rating can be vary from the highest until the lowest depending on the performance of the country or the company. The AAA means the debtor is very excellent in managing their debt and have the ability to meet it requirement during the repayment period. However, the rating can be adjusted from time to time depending on the performance and ability of the debtor.

Picking Individual Assets (Phase 4)
Investor can choose to invest in different individual assets in which they can purchase and sell to generate profit. It can be vary from stocks, mutual fund, and index fund. Before the investor want to start with the investment they need to consider about factors such as risk tolerance, transaction cost and prospectus. The prospectus is very crucial as it contain all critical information and details about the fund.

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