Risk
Balancing risk and return is one of the fundamentals of investing.
Typically, the opportunity to earn a higher return means increasing
the level of risk. However, you can manage risk by determining your
acceptable comfort level and building your portfolio accordingly.
Although all investments include some type of risk, the level varies
depending on the type of investment. For example, cash investments
have low risk, whereas equities typically have higher risk. The
list below identifies some common investment risks.
Types of Risk
Market Risk - the volatility of rising and falling equity
markets. There are a number of factors that can impact the markets,
including economic performance, interest rates, political climate
and industry or company developments.
Interest Rate Risk - primarily impacts interest-sensitive
investments such as fixed income investments and bonds. This type
of risk, which is the result of changing interest rates, typically
concerns investors that rely on regular cash flow.
Inflation Risk - can threaten long-term goals through the
rising cost of goods and services. You can mitigate inflation risk
and its effect on your long-term goals by including equities in
your portfolio, which have historically outpaced inflation over
time.
Currency Risk - influences non-Canadian investments. Mutual
funds that purchase foreign securities may be required to pay for
such securities using a foreign currency and receive a foreign currency
when they sell them. Changes in the value of the Canadian dollar
compared to foreign currencies will affect the value of any foreign
securities in a mutual fund.
Credit Risk - denotes a borrower's ability to repay a loan
or obligation. Funds that invest in debt securities of companies
or govenments with higher credit risk tend to be more volatile in
the short term. However, they may offer the potential of higher
returns over the long term.
Foreign investment risk - represents the impact of global
economic factors such as corporate information availability, accounting,
auditing and reporting standards, trading volume on foreign markets
and investment or exchange laws. Mutual funds that specialize in
foreign investments may experience larger and more frequent price
changes in the short term.
To learn more about developing an investment plan, please continue by choosing one of the following
topics:
To learn more about individual RBC Funds and how they can address
your investment objectives, access our Fund Updates. If you are ready to invest now, contact your advisor
or explore the options available
to invest with RBC Financial Group.
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