Types of Investment Risk
Chapters in this video
- 0:00 The Core 5 risks and the Cora-Rita-Sam story cast
- 1:22 Timing risk: market peaks, troughs, and dollar-cost averaging
- 2:15 Nonsystematic vs. systematic risk and the diversification trap
- 3:20 Call risk: issuers refinance when rates fall
- 3:51 Reinvestment risk and the interest-rate seesaw
- 4:27 Adjacent risks: credit, inflation, legislative, liquidity traps
- 5:36 Reg BI, plain-English disclosure, and the quantitative-metrics trap
- 6:41 Rapid-fire exam recap
What this video covers
- Why diversification reduces nonsystematic risk only, and why systematic risk survives even a portfolio of 500 equity funds
- How timing risk is the danger of buying at market peaks or selling at troughs, and why dollar-cost averaging (DCA) is the standard mitigation tool
- Why call risk always hurts the investor when interest rates fall, forcing reinvestment at lower yields
- How reinvestment risk and interest-rate risk move in opposite directions: falling rates create reinvestment pain but boost existing bond prices
- Why a long zero-coupon Treasury bond has maximum interest-rate risk yet zero reinvestment risk
- Where liquidity risk hides in variable-annuity surrender periods even when underlying subaccounts are perfectly liquid
- What Regulation Best Interest (Reg BI) requires for retail customers: plain-English risk disclosure, not quantitative metrics, matched to tolerance, time horizon, and liquidity needs
Read the full lesson, free
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