All investments involve risks including possible loss of principal. The following are some general risks associated with various asset classes mentioned on this website. This is not an all-inclusive list. Each specific investment approach and product will have its own specific risks and risks will vary.
Equity market risks — Equity markets are subject to many factors, including economic conditions, government regulations, market sentiment, local and international political events, and environmental and technological issues.
Smaller capitalization stock risks — The share prices of small and mid-cap companies may exhibit greater volatility than the share prices of larger capitalization companies. In addition, shares of small and mid-cap companies are often less liquid than larger capitalization companies.
Concentration risk — Concentration of investments in a relatively small number of securities, sectors or industries, or geographical regions may significantly affect performance.
Fixed income securities market risks — Fixed income securities markets are subject to many factors, including economic conditions, government regulations, market sentiment, and local and international political events. In addition, the market value of fixed income securities will fluctuate in response to changes in interest rates, currency values, and the creditworthiness of the issuer.
Below investment grade risks — Lower-rated securities have a significantly greater risk of default in payments of interest and/or principal than the risk of default for investment-grade securities. The secondary market for lower-rated securities is typically much less liquid than the market for investment-grade securities, frequently with significantly more volatile prices and larger spreads between bid and asked price in trading.
Credit risk — The value of fixed income security may decline, or the issuer or guarantor of that security may fail to pay interest or principal when due, as a result of adverse changes to the issuer’s or guarantor’s financial status and/or business. In general, lower-rated securities carry a greater degree of credit risk than higher-rated securities.
Interest-rate risk — Generally, the value of fixed income securities will change inversely with changes in interest rates. The risk that changes in interest rates will adversely affect investments will be greater for longer-term fixed income securities than for shorter-term fixed income securities.
Foreign and emerging markets risk — Investments in foreign markets may present risks not typically associated with domestic markets. These risks may include changes in currency exchange rates; less-liquid markets and less available information; less government supervision of exchanges, brokers, and issuers; increased social, economic, and political uncertainty; and greater price volatility. These risks may be greater in emerging markets, which may also entail different risks from developed markets.
Commodities risks — Exposure to the commodities markets may be more volatile than investments in traditional equity or fixed income securities. The value of commodity-linked derivative instruments may be affected by changes in overall market movements, commodity index volatility, interest-rate changes, or events affecting a particular commodity or industry.
Currency risk — Investments in currencies, currency derivatives, or similar instruments, as well as in securities that are denominated in foreign currency, are subject to the risk that the value of a particular currency will change in relation to one or more other currencies.
Alternatives risks — Alternative investments tend to use leverage, which can serve to magnify potential losses. Additionally, they can be subject to increased illiquidity, volatility and counterparty risks, among other risks.
Risks of derivative instruments — Derivatives, which are often used in alternative investments, can be volatile and involve various degrees of risk. The value of derivative instruments may be affected by changes in overall market movements, the business or financial condition of specific companies, index volatility, changes in interest rates, or factors affecting a particular industry or region. Other relevant risks include the possible default of the counterparty to the transaction and the potential liquidity risk with respect to particular derivative instruments. Moreover, because many derivative instruments provide significantly more market exposure than the money paid or deposited when the transaction is entered into, a relatively small adverse market movement can not only result in the loss of the entire investment, but may also expose a portfolio to the possibility of a loss exceeding the original amount invested.
Liquidity risk — Investments with low liquidity can have significant changes in market value, and there is no guarantee that these securities could be sold at fair value.
Manager risk — Investment performance depends on the portfolio management team and the team’s investment strategies. If the investment strategies do not perform as expected, if opportunities to implement those strategies do not arise, or if the team does not implement its investment strategies successfully, an investment portfolio may underperform or suffer significant losses.
Diversification cannot assure a profit or protect against loss.
Below are some definitions of various investment and financial terms that may be mentioned on this site. This list does not include the definitions of all terms that may be mentioned on this site.
Alpha — Measures risk-adjusted performance and is generally calculated as the difference between the returns of an investment and its benchmark.
Beta — Measures of an investment’s risk relative to the market. It can also be considered a measure of systematic risk.
Correlation — A statistical measure of an investment’s movement in relation to another.
Duration — Measures the sensitivity of the price of a fixed income investment to a given change in interest rates.
Strategic asset allocation — Is generally considered a long-term target allocation for a portfolio.
Tactical asset allocation — Short-term allocation changes generally due to market conditions.
Tracking risk — Measures the deviation in the performance of an investment relative to its benchmark.
Downside risk — Measures the potential losses that may occur if a particular investment position is taken.
CPI — Consumer Price Index
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