Important to know! Investment risks that all investors must understand

Investing is an enticing path to wealth creation, but it does not promise always returns. A common question in investment discussions is: What types of risks are involved in investing? While it may sound like a simple phrase, the underlying meaning is quite complex. Whether you’re a novice trader or a professional, understanding this is essential to protect your funds.

Types of Risks Investors Must Beware Of

Investment risks are not just a single issue but a broad spectrum with multiple dimensions. Understanding each type is necessary to plan your investments appropriately.

Market Risks: Worrying about countless variables

Financial markets are not calm. Many factors can disturb:

Interest Rate Risk occurs when central banks raise or lower interest rates. Debt instruments like bonds are directly affected. When the main policy rate (Policy Rate) increases, the value of existing bonds with lower interest payments decreases.

Stock Market Risk mainly stems from market volatility, corporate performance, investor sentiment, and overall economic conditions. A company may announce good earnings, but the market might respond by selling off due to concerns about future competition.

Exchange Rate Risk affects investors in foreign markets. If the baht appreciates, your dollar-denominated investments become less valuable in baht terms. This event is unpredictable and can go in any direction.

Commodity Price Risk involves fluctuations in oil, gold, or wheat prices driven by natural disasters, government decisions, and other factors.

Liquidity Risk: Stuck in your investment

Often, investors want to sell but cannot find enough buyers. This situation frequently occurs with real estate, certain bonds, or small-cap stocks. When the market lacks liquidity, sellers are forced to accept significantly lower prices to make a sale.

Concentration Risk: Putting all eggs in one basket

Risk arising from having too high a proportion of funds in a single asset class is called Concentration Risk. When that asset drops, the entire portfolio suffers. To reduce this risk, experts recommend diversifying across sectors, countries, and asset types. Good diversification involves holding different currencies, stocks, bonds, and digital assets in appropriate proportions.

Default Risk: When issuers fail

When you invest in corporate bonds, you are lending money to that company. The risk is that the company may not repay. Credit rating agencies help assess this. For example, government bonds are generally low risk because governments can tax to meet obligations, whereas bonds from small companies in developing countries may carry higher risk.

Reinvestment Risk: Finding new opportunities

When your bonds mature or are called early, and market interest rates have fallen, the new returns may be lower. This risk particularly troubles long-term investors.

Inflation Risk: Quiet erosion

Even if your investment yields 3% annually, if inflation is 5%, your purchasing power declines. This risk severely impacts fixed-income securities with constant returns.

Duration Risk: When plans change

Sometimes life forces us to sell investments that should be held for 10 more years. Medical emergencies, job loss, or the need to buy a house can cause investors to sell during market downturns, resulting in preventable losses.

Longevity Risk: Marrying time

As life expectancy increases, retirement savings may not last until the end. The risk of depleting your savings before you pass away may force reliance on others in later years.

Foreign Investment Risk: Throwing darts in the dark

Investing in foreign ETFs like (Thailand ETF) can offer attractive returns, but uncertainties such as exchange rates, political instability, or economic cycles can differ greatly from Thailand.

High-Risk Investments: Gold with Thorns

For the daring, high-risk investments often come with high returns but also the potential for significant losses.

Cryptocurrencies: Volatility that irritates

Bitcoin and other digital coins can fluctuate more than 20% within a single hour. This volatility stems from news events, community sentiment, and regulatory announcements. It’s an adrenaline rush.

CFDs (Contracts for Difference): Risks in disguise

CFDs allow traders to profit from asset price movements without owning the underlying asset. But they carry dangers:

• Use of (leverage): You can control large assets with a small amount of capital.
• Leverage amplifies both gains and losses.
• Counterparty risk: CFDs are OTC trades with brokers. If the broker fails, your funds may be lost.

Options and Futures ###: The starting point

These derivatives give the right or obligation to buy/sell in the future. Their high leverage structure excites both profit and loss potential. Beginners should be very cautious, as they can lose all their capital.

Forex (: The turbulent sea

The currency exchange market is the largest and most liquid in the world, but it’s also highly volatile:

• Forex trading uses high margins, meaning small price movements can wipe out your entire position.
• Volatility is driven by economic indicators, political news, central bank policies, and unexpected events.

Low-Risk Investments: Safer Paths

If you want peace of mind, there are alternatives.

) Government Bonds: Support from state power

Treasury savings bonds are backed by the government’s credibility:

• Pay interest quarterly ###Mar, Jun, Sep, Dec###
• Very low default risk compared to corporate bonds
• Used as a safeguard in declining markets

Money Market Funds: Balance between returns and safety

Suitable for beginners seeking higher yields than savings accounts:

• Highly liquid, easy to withdraw
• Lower risk than stocks, higher than deposits
• Ideal for short-term goals or emergency funds

Blue-chip Stocks: Giants with strong roots

Large, reputable companies like Apple, Microsoft, Johnson & Johnson:

• Stable earnings history
• Regular dividends
• Lower volatility than small companies or startups
• Less affected by market chaos

Risk Mitigation Techniques: Investor’s Shield

No matter what the risk is, there are ways to manage it.

Avoid overly risky investments

Beginners should not rush into high-risk assets. Investing in CFDs or leveraged futures without fully understanding the market is like kicking a pond and splashing water in your face. Choose what you understand and can afford.

Reduce investment size

Even if the prospects look good, investing everything is not wise. Analyze and select only a few optimal options instead of over-diversifying.

( Transfer investments

If your current investments do not perform as expected, close positions and switch to better options. This way, you transfer risk to a more favorable direction.

) Deep study

The internet is full of information some free, some paid. Spending time to thoroughly understand your investment interests costs nothing but pays off.

Summary: Risk is part of investing

Investing always involves risks, whether it’s inflation, market volatility, or default. Digital currencies, CFDs, derivatives, and Forex offer high profits but come with high risks. Therefore, investors should take the phrase “risk tolerance” seriously, plan investments aligned with their goals and mental readiness, and avoid entering the game before understanding the rules.