Helping investors make informed decisions

At Church House we believe successful investment management is about effective risk management. To help understanding in this area we explore below some of the different risks associated with investing. As professional investment managers we consider all these risk when constructing diversified portfolios and managing our investment funds. 

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Inflation Risk

This is the danger that the value of your investment may not grow at a rate equal to a rise in the cost of goods and services. In this scenario investors will see the purchasing power of their money reduce. This can be a particular challenge for cash investors when savings interest rates fall below the rate of inflation.

Credit Risk

To raise capital companies and governments can offer investors a fixed income over a specified period, after which they will return the value of the initial investment or capital. These investments are known as bonds. A danger for bond investors is that the issuer encounters financial difficulties and as a consequence they fail to make income payments or worse still they do not return all of the capital. This is known as credit risk.

Business Risk

Investing often involves holding shares in businesses, either directly or indirectly. The fortunes of those companies are not guaranteed, and if they underperform or fail, the value of the investment in them can fall.

Concentration Risk

A vital tactic to minimise risk is diversification. Concentration risk is the danger of focusing all or a large proportion of your investment in one area. This might be the nature of the investment, for example, property or a particular country like the United States.

Longevity Risk

Many retirees use investments as a means of generating an income to support essential and discretionary spending.  It is not uncommon for the income generated by the investments to be supplemented by withdrawals of the capital. Longevity Risk is that the possibility that the money runs out before the need for that income stops.

Interest Rate Risk

Rising interest rates can have a damaging effect on economies, resulting in a knock-on impact for investors. The cost of borrowing for companies’ increases, which in turn puts pressure on profits. In such circumstances, the value of those businesses can be adversely affected. In the case of bonds, if the risk-free rate of interest gets close to the income they are providing, then the value of the investment can fall.

Liquidity Risk

A critical concern for an investor should be access to their money. Liquidity Risk is the danger that you cannot sell an investment at the time it is required. Or that selling comes at a cost either through a reduced price or the imposition of a penalty charge.

Country Risk

The risk here is that investors have exposure to a country or region that is experiencing economic difficulties. This can affect companies operating in the country and the businesses that trade with them.

Market Risk

This is the danger of significant falls across world stock markets that effects the value of almost all forms of investment. This risk is usually associated with major global events such as wars, natural disasters and, in a recent example, a pandemic.