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Managing my investments
Managing my investments

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3.1.2 Risk interrelationships

The image is of a row of dominoes falling from right to left.
Figure 2 Risks can have knock-on consequences.

Arguably liquidity risk, counterparty risk, currency risk, default risk, inflation risk, interest-rate risk and shortfall risk are all examples of risks that underlie the capital risk and income risk.

Each of the underlying risks, if they materialise, can reduce the capital value of an investment, perhaps with extreme consequences in respect of default risk, and/or reduce the real value of the income stream from the investment.

Note that risks can be managed. The presence of risk is not an excuse for not investing in the future, as you then expose yourself to the biggest risk: that you have insufficient funds for later life.

Having examined your investment objectives and their time horizons; and ascertained the risks to which your investments are exposed, you now turn to the management strategies you can apply when investing.