Investing in the financial markets always involves risks. For someone to be in a position to make financial investments, a basic understanding of the different risk components is required.
Generally speaking, there is a close relationship between risk and return. A pure account solution only seems “risk-free” at first glance. Look again, however, and it is evident you have entered into a counterparty risk and depending on the account conditions, withdrawal limits may cause a liquidity risk.
So any investment involves certain clearly calculable but also various incalculable risks (e.g. political or regulatory). At the start of every investment, it is important to bear in mind whether the objective is to preserve or increase assets, as the value of any investment in financial markets is due to either fall or rise over time. A good rule of thumb is: the higher the expected return (the more shares), the greater the fluctuations and the associated risks. With our implementation process, we strive to minimize risks for our client, by using for example index funds and ETF’s, giving a broader diversification than individual securities.
The most important risks include: price and counterparty risk, exchange and interest rate risk, securities lending, general economic risks such as a country’s economy and geopolitical situation, together with inflation – which is often underestimated in the case of a pure account solution.