Evaluation of investment risk depends on your overall financial goals so the first step should be to identify your goals and then decide how much investment risk you are comfortable taking.

The length of time that investments will be held is also a crucial factor in any financial plan.

Having been a professional investment advisor for over 20 years, I know this is not as easy as it sounds…

‘Conservative‘ to one person may not mean ‘conservative’ to me. One example would be a gentleman I met who thought his 3% per month investment ‘program’ return was ‘conservative’ when I heard the details, it was obviously ‘insanely risky’ and certainly not ‘conservative! And yes! That ‘program’ later collapsed…

I have met with, studied and represent some of the world’s most famous and successful professional money managers. I was even quoted in Forbes Magazine at a professional trading seminar attended by a few of them and can assure you that even 5% per annum is a high rate of return (and difficult to achieve) at the moment and is normally associated with a high level of risk.

There are many different types of risks that we must consider and we will describe them briefly here:

1. Market risk is uncertainty due to changes in the general level of market prices for investments, caused by political, social, and/or economic changes.
2. Company Risk is the uncertainty that a particular company may fail to meet future earnings expectations, be unable to pay dividends or interest, or simply get beaten up by stronger competition.
3. Credit Risk is the risk that a company (or country) may experience difficulty in paying its debts.
4. Interest Rate Risk is where interest rates may rise and decrease the value of an investment.
5. Inflationary Risk is the uncertainty that investments will not keep pace with inflation and your purchasing power will be reduced.
6. Reinvestment Risk is the uncertainty that the investor will not be able to reinvest the earnings and/or principal at the same rate of return that the initial investment earned.
7. Industry Risk is the uncertainty that a particular industry’s performance may impact the growth of the investment.
8. Currency risk is the uncertainty that currency fluctuations may affect the value of foreign investments (negatively and positively) or profits when converting them into the investor’s local currency.

There is no right or wrong personal risk tolerance when it comes to investing, but investments should never cause you to lose sleep.

We believe the key to success is to work with a qualified, experienced, international investment advisor you can trust, who will take the time to get to know you and your family and together, determine what is best for you.

Written by Scott Oliver, author of 1: How To Buy Costa Rica Real Estate Without Losing Your Camisa, 2: Costa Rica’s Guide To Making Money Offshore and 3. ¿Cómo Comprar Bienes Raíces en Costa Rica, Sin Perder Su Camisa?

Andrew Makarik

to@welovecostarica.com

Andrew Makarik is the main editor of WeLoveCostaRica, a fan of this sunny country. He is also a loving husband and a has a lovely daughter. By being a devoted family man and the biggest Costa Rica fan, he wants to make more people feel at home there. WeLoveCostaRica unites people and helps them find new home or a new travel destination. This website is a friendly community where everyone can find not only information, but also new friends and travel pals. Andrew is also passionate about IT and programming, so he himself maintains a friendly atmosphere in this cozy environment of WeLoveCostaRica.com.