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FP Article 15.1 (To sign up for a FREE 16-lesson eCourse on Investment Risk, please click here.)

Investment Risk - Borrowing Risk

by Rajen Devadason

Blessed are the young, for they shall inherit the national debt.

Herbert Hoover

  Most forms of investment risk are unavoidable if you wish to invest in any significant and meaningful way. Borrowing risk is the exception that proves that particular rule!

That's because this is a type of investment risk, which is voluntarily assumed by someone who opts to invest with borrowed money.

In doing so, the leverage associated with OPM - other people's money - comes into play.

 

 

 

 

 

 

 



If the investment rises, the investor who has borrowed stands to make a lot more money through his use of other people's resources. But if the investment fails, he could lose his shirt!

This is an article explaining borrowing risk. I hope you enjoy reading it. But if it isn't what you're looking for, you're welcome to search for something that better meets your needs. Thank you for allowing me to serve you.

Rajen Devadason

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In most cases, it is dangerous to borrow to invest. It is usually far more effective, in the long run, to build personally owned investment capital generated through work and savings.

Here is a simple example that serves to illustrate my point.

You already know that mutual funds or unit trusts, for instance, are  volatile instruments, particularly if these invest in equities.

The inherent diversification within equity mutual funds or unit trusts provides some reduction in total risk. Unfortunately, there is never any way of escaping a system-wide collapse.

At certain times, in certain markets, the stock market has tanked as much as 50% in the span of a few months.

Be very aware of the dangers inherent in borrowing.

If you'd like to continue to learn more about other types of investment risk, here's additional information for you...

15 Types of Investment Risk (OR, to sign up for a FREE 16-lesson eCourse on Investment Risk, please click here.)

1. Borrowing Risk

2. Company Risk

3. Credit Risk

4. Currency Risk

5. Diversification Risk

6. Industry Risk

7. Inflation Risk

8. Interest Rate Risk

9. Liquidity Risk

10. Lost Opportunity Risk

11. Manager's Risk

12. Market Risk

13. Market Timing Risk

14. Political Risk

15. Prepayment Risk

 

 

© Rajen Devadason

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Rajen Devadason, CEO RD WealthCreation Sdn Bhd & RD Book Projects
349, Desa Rasah, Jalan Bayan 7, 70300 Seremban, NS, Malaysia
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