1. Market Risk – The risk of an investment declining due to broad market movements and volatility (e.g., the 1987 stock market crash, driven by panic selling despite no recession, or the sharp early 2020 decline resulting from panic about the COVID-19 pandemic). One common measure of market risk is beta, which indicates how sensitive an investment is to movements in the overall market. A beta greater than 1 suggests higher volatility than the market, while a beta less than 1 implies lower volatility.
2. Interest Rate Risk – The risk that rising interest rates will cause bond prices to drop or that declining interest rates will reduce returns on money market assets.
3. Duration Risk – The risk that short-duration bonds underperform if interest rates fall or that long-duration bonds will underperform if rates rise.
4. Concentration Risk – The risk of adverse events impacting a specific asset or sector concentration to which a portfolio has high exposure.
5. Credit Risk – The risk that a bond issuer defaults on payment obligations or spreads widen in anticipation.
6. Liquidity Risk – The risk that lack of market depth and low trading volume make an asset challenging to trade.
7. Tracking Error Risk – The risk that a portfolio fails to match the performance of its benchmark.
8. Active Risk – Risk resulting from active trading strategies, e.g., rapid-fire risk-on/risk-off trades.
9. Style Risk – The risk that a particular investing style underperforms, e.g., growth vs. value.
10. Valuation or Mark Risk – The risk that an asset is improperly valued or mispriced.
11. Inflation Risk – The risk that inflation diminishes the purchasing power of a portfolio’s assets.
12. Regulatory Risk – The risk that regulatory changes negatively impact the portfolio.
13. Tax Risk – The risk that portfolio changes create unexpected tax liabilities.
14. Geopolitical Risk – The risk that political changes negatively impact investment performance.
15. Currency Risk – The risk that currency fluctuations reduce foreign investment returns.
16. Business Risk – The risk a company’s business fundamentals deteriorate.
17. Fraud Risk – The risk that investment fraud causes financial loss.
18. Correlation and Volatility Risk – The risk that asset correlations become unstable and portfolio volatility exceeds expectations during market stress. One way to quantify this risk is through Value at Risk (VaR), a statistical measure that estimates the potential loss in portfolio value over a given time horizon with a specified confidence level. However, VaR can underestimate risk during extreme events when correlations spike and volatility surges.
19. Sequence of Return Risk – The risk that the order and timing of portfolios withdrawals and investment returns adversely impact overall performance. Retirement income portfolios can be especially vulnerable to this risk.
20. Cybersecurity Risk – The risk that cyberattacks, data breaches, or IT system failures lead to financial losses, operational disruptions, or reputational damage affecting portfolio holdings, financial markets, or the investor’s own assets.

Maintaining a well-diversified portfolio aligned with an investor’s risk tolerance and objectives helps minimize potential risk. It’s equally essential that a competent money manager monitor and adjust portfolio asset allocation as needed. Decision-making should be grounded in evidence-based strategies and robust financial theory, not emotions. Be wary of any advisor who claims an investment has no risk; such claims may warrant considering an alternative advisor.

In summary, partnering with a qualified professional can instill confidence that your portfolio is resilient, aligns with your goals, and effectively manages risk. At Successful Portfolios, our expertise in constructing diversified portfolios and our disciplined risk management approach ensure your investments are positioned for growth opportunities while shielding against undue losses.

If you are concerned about the risks impacting your investments, call or text (727) 744-3614. Learn more about us and schedule a meeting below. Prioritizing and managing investment risk is the heart of what we do as professional money managers.