- Choosing to invest in securities involves exposure to multiple risks, which may be broadly divided into systematic risks and unsystematic risks (idiosyncratic risks). The combination of these risks equals the total risk of your investment portfolio.
- Examples of systematic risks include (but are not limited to):
- Market risk: Variability in asset prices consequent to changes in economic or market conditions.
- Interest rate risk: Variability in asset prices consequent to changes in prevailing interest rates or yields.
- Reinvestment rate risk: Variability in the terminal value of any asset consequent to changes in the rate of return for reinvested earnings.
- Purchasing power risk (inflation risk): A decline in the purchasing power of any asset consequent to price inflation.
- Exchange rate risk: Variability in asset prices consequent to changes in relative valuations of currencies.
- Examples of unsystematic risks or idiosyncratic risks include (but are not limited to):
- Political risk (government risk and country risk): Volatility in asset prices consequent to changes in the legal, regulatory, or political environment of any territory in which an asset is domiciled.
- Expropriation risk: Risk of any government, lawfully or unlawfully, expropriating or seizing privately owned assets for public use, counter to the wishes of investors and potentially without fair compensation to investors.
- Default risk (credit risk): Risk to creditors of any business that the business may be unable to meet its debt and interest obligations, with potential loss to creditors if collateral assets are insufficient to cover debt and interest obligations.
- Financial risk: Risk associated with the use of debt or leverage within any business.
- Executive risk: Risk associated with decision-making by officers or executives of any business, potentially consequent to poor decision-making or fraud.
- Business risk: Risks inherent to any specific business, or the uncertainty of a business’s operating income.
- Accounting risk: Risk that financial statements do not accurately reflect the financial condition of any business, potentially consequent to accounting error or fraud.
- Call risk: Risk that a callable fixed income security will be called by its issuer, exposing investors to reinvestment rate risk. Fixed income securities may include call features, allowing issuers to call these securities when interest rates decline, prior to their scheduled maturity dates.
- Liquidity risk and marketability risk: Liquidity risk is risk that an investor may not be readily able, or may be unable, to sell an investment expediently and without loss of principal or compromise in sale price. Marketability risk is risk that an investor may not be readily able, or may be unable, to find a market in which to sell an investment. Liquidity risk may be measured by the spread between the bid price and ask price (bid-ask spread) of any security. Wider bid-ask spreads indicate greater liquidity risk.
Dependent Care FSAs and the Child and Dependent Care Credit
Dependent Care Flexible Spending Arrangement (DCFSA) contributions are limited to $5,000 per plan year ($2,500 limit for married filing separately tax status). Lower contribution limits
Bentley Makkar
December 13, 2024
No Comments