Howdy,
While the consideration of a near riskless investment may point towards FDIC insured type investments in CD's or whatever currently small yield may be obtained from checking/share draft accounts and related; the small and likely risk is loss of purchasing power going forward with these "investments". However, I will never poo-poo an individual with using these accounts, "IF" they do not fully understand themselves, the investing world or have full faith in an investment advisor.
Ultimately, the risk factor is with the individual investor and what they placed on their own list of what is risk for them; versus the typical risk assessment from a prospectus (below). Not unlike a risk assessment list that is provided to an investor from an advisor; I am of the opinion that an investor must perform their own risk assessment "how to" list with the utmost honesty. A sincere, who am I, assessment, so that you too; may sleep soundly.
Not that these thoughts are new territory to many here at MFO, but may be of value to the new investor reading through MFO.
The below prospectus wording was drawn from typical fund wording. I have added or deleted a few words to reflect a more general prospectus that may apply to any flavor of investment.
Just my inflation adjusted 2 cents worth.
Take care,
Catch
It is possible to lose money on an investment in a FUND. Under certain conditions, generally in a market where the value of equity and/or fixed income securities are declining, a Fund may experience substantial losses. The principal risks of investing in a Fund, which could adversely affect its net asset value, yield and total return are:
--- Interest Rate Risk: the risk that fixed income securities will decline in value because of an increase in interest rates; a fund with a longer average portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration
--- Credit Risk: the risk that a Fund could lose money if the issuer or guarantor of a fixed income security, or the counterparty to a derivative contract, is unable or unwilling to meet its financial obligations
--- High Yield Risk: the risk that high yield securities and unrated securities of similar credit quality (commonly known as "junk bonds") are subject to greater levels of credit and liquidity risks. High yield securities are considered primarily speculative with respect to the issuer's continuing ability to make principal and interest payments
--- Market Risk: the risk that the value of securities owned by a Fund may go up or down, sometimes rapidly or unpredictably, due to factors affecting securities markets generally or particular industries
--- Issuer Risk: the risk that the value of a security may decline for a reason directly related to the issuer, such as management performance, financial leverage and reduced demand for the issuer's goods or services
--- Liquidity Risk: the risk that a particular investment may be difficult to purchase or sell and that the Fund may be unable to sell illiquid securities at an advantageous time or price or achieve its desired level of exposure to a certain sector
--- Derivatives Risk: the risk of investing in derivative instruments, including liquidity, interest rate, market, credit and management risks, mispricing or improper valuation. Changes in the value of the derivative may not correlate perfectly with the underlying asset, rate or index, and a Fund could lose more than the principal amount invested
--- Equity Risk: the risk that the value of equity securities, such as common stocks and preferred stocks, may decline due to general market conditions which are not specifically related to a particular company or to factors affecting a particular industry or industries. Equity securities generally have greater price volatility than fixed income securities
--- Mortgage-Related and Other Asset-Backed Risk: the risk of investing in mortgage-related and other asset-backed securities, including interest rate risk, extension risk and prepayment risk
--- Foreign (non-U.S.) Investment Risk: the risk that investing in foreign (non-U.S.) securities may result in a Fund experiencing more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies, due to smaller markets, differing reporting, accounting and auditing standards, and nationalization, expropriation or confiscatory taxation, currency blockage, or political changes or diplomatic developments. Foreign securities may also be less liquid and more difficult to value than securities of U.S. issuers
--- Emerging Markets Risk: the risk of investing in emerging market securities, primarily increased foreign (non-U.S.) investment risk
--- Currency Risk: the risk that foreign currencies will decline in value relative to the U.S. dollar and affect the Fund's investments in foreign (non-U.S.) currencies or in securities that trade in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies
--- Issuer Non-Diversification Risk: the risk of focusing investments in a small number of issuers, including being more susceptible to risks associated with a single economic, political or regulatory occurrence than a more diversified portfolio might be. Funds that are "non-diversified" may invest a greater percentage of their assets in the securities of a single issuer (such as bonds issued by a particular state) than funds that are "diversified"
--- Leveraging Risk: the risk that certain transactions of a Fund, such as reverse repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions, or derivative instruments, may give rise to leverage, causing a Fund to be more volatile than if it had not been leveraged
--- Management Risk: the risk that the investment techniques and risk analyses applied will not produce the desired results and that legislative, regulatory, or tax developments may affect the investment techniques available; and the individual portfolio manager in connection with managing a Fund. There is no guarantee that the investment objective of a Fund will be achieved
--- Short Sale Risk: the risk of entering into short sales, including the potential loss of more money than the actual cost of the investment, and the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to a Fund
Please see "Description of Principal Risks" in a Fund's prospectus for a more detailed description of the risks of investing in a Fund. An investment in a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
Comments
Seem like a boiler plate to all my fund prospectii these days. In other words:
"If you didn't know,,,now you know" or "Risk Happens"
And you, kind sir; are the grand prize winner. Yes, the base wording is taken from an income style fund prospectus. The basic notations within the text do not take every risk aspect into consideration; but I feel does cover the premise(s) of what can happen.
Let me know if you prefer FedEx or UPS delivery.
Grand Prize
Congratulations upon your fine detective work. Our profile program considers that you are indeed well suited for your chosen profession.
Take care,
Catch
Obviously, they are locked up somewhere in Africa and I just need to send some money and some info (SSN, bank account numbers etc.) for taking care of procedural stuff. Right?