Small Trades Journal

Downside risk of asset classes

Equities

• Decline of market price from multiple causes
• Principal and dividends are not guaranteed

REITs

• Loss of rental income, interest income, or property value

Bonds

• Loss of income from early repayment of debt
• Delayed or missed payment of principal or interest
• Decline in market price

Bonds nontaxable

• Delayed, terminated, or diminished payments from multiple causes

Precious metals

• Decline of market price
• Theft from safe keeping

Commodities

• Decline of market price
• Commodity pool futures contracts may not correlate with commodity price (e.g., the price of a futures contract may unexpectedly fall toward the spot price of the commodity upon approaching the expiration date, tending to lower the net asset value of the portfolio).

Derivatives

• Loss from derivatives may exceed loss from the underlying assets.
• Collateral assets may be illiquid

Currencies

• Currency exchange rates fluctuate
• Currency futures contracts may diverge from the underlying currency
• Risks related to holding bonds or derivatives

Cash equivalents

• Loss of income from declining interest rate
• Decline of short-term bond price from rising interest rate
• Borrower default

This entry was posted on Saturday, September 24th, 2011 at 6:44 am and is filed under Personal finance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.