Associated Risks

Part of successful investing is based on understanding and managing risk. In the investment world, risk refers to the elements that determine whether an investment’s value or return will be lower or higher than expected. Here's a quick glossary of the most common risks investors face:

Business Risk
The risk specific to a business, firm or property that may cause it to fail as a result of poor earnings from operations or poor management.

Market or Volatility Risk
Unrelated issues including world events, tax laws and the "mood" of the market can cumulatively affect securities prices resulting in changes in stock or bond prices. While market or volatility risk is a significant short-term risk, it becomes less significant with time.

Diversity Risk
This is the risk that goes along with putting all of your eggs in one basket. If you own only a few investments, or all of your investments are concentrated in a particular industry or geographic location, you are extremely vulnerable to loss if one of them performs poorly.

Purchasing Power (Inflation) Risk
Although not a short-term risk, in the long term, the cumulative effect of inflation risk erodes value and reduces returns and purchasing power.

Currency Risk
Shifts in foreign exchange rates can change the dollar value of international investments.

Interest Rate Risk
As interest rates rise, bond prices usually fall, lowering the value of bond investments. Conversely, as interest rates fall, bond prices usually increase, increasing the value of bond investments.

Liquidity Risk
When you put money into investments that aren’t actively traded, you may not get a fair price if you had to sell suddenly in order to obtain cash or liquid assets.

Default Risk
Bond issuers may default on principal and interest payments. Bonds and bond portfolios carry ratings to help identify this risk.

Additional Risks In addition to the risks described above, there are also risks that are more specifically associated with particular investments:

Foreign Securities Risk
International investments may carry more risk because of currency fluctuations, political and economic instabilities and differences in accounting standards in addition to other risks, that are used when investing in foreign markets.

Small Company Risk
Equity securities of small capitalization companies compared to large capitalization companies are subject to greater price volatility and risk due to, among other things, companies’ small size, limited product lines, limited access to financing sources and limited management depth.

Stable Price Risk
Although generally considered safe, money market investments are neither insured nor guaranteed by the Federal Deposit Insurance Corporation (FDIC) nor any other federal agency and may not be able to maintain a stable net asset value of $1.00. There may be situations where the net asset value could fall below $1.00, reducing the value of the amount originally invested at the time of redemption.

Mortgage Securities Risk
The risks incurred by mortgage securities include but are not limited to, reinvestment of prepaid loans at lower rates of return. In addition, the unit values of mortgage securities may fluctuate in response to changes in interest rates and are not guaranteed.

Real Estate Risk
Investment risk associated with investing in real estate portfolios, in addition to other risks, include rental income fluctuation, depreciation, property tax value changes, and differences in real estate market values.

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