Introduction

Investing in capital markets is associated with various risks. It is essential to develop an understanding of the risks of investing, financial instruments and financial services. The purpose of this document is to convey such an understanding.

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Fundamentals of Investing

Risk is about the probability and possible extent of losses of an investment. An investor must accept the possibility of taking losses in the investment process.

Relationship between Return, Security and Liquidity

To be able to choose an investment strategy you should understand the importance of the three pillars of successful investing: Return is the measure of economic success of an investment which is expressed in gains and losses. Security aims at preserving the value of the investment. The security of an investment depends on the risks associated with that investment. Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Return, security and liquidity are inherently linked. A secure and liquid investment will, as a general rule, not generate high returns. A secure investment generating relatively high returns will probably not be liquid. A liquid investment generating high returns will regularly provide a low security. All in all, an investor must weigh these goals against each other depending on his/her individual preferences as well as personal and financial circumstances.

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Managing Portfolio Risk

Although it is not possible to predict what is going to happen in the future, it is possible to manage your exposure to different risks within your investment portfolio, to a certain extent. Our role is to design portfolios that can withstand shocks whilst still offering the opportunity for returns. However, market conditions may limit our ability to trade certain assets in your portfolio.
Diversification is one way in which portfolio risk is managed. This is because different classes of assets are affected by different risks to different degrees. If the risk is spread across many different assets and asset classes, it is unlikely to affect all at the same time and to the same degree.

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Risks of Different Asset Classes

Real Estate

Your Real Estate as an asset class

Real Estate as an asset class may comprise investments in residential, commercial as well as special purpose real estate. The investment may be made directly by acquiring real property or indirectly by investing in real estate funds, REITs or real estate companies. Investments in real estate are, inter alia, subject to the following risks: Return risk

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The changing nature of money is only one facet of the financial services revolution.

- Scott Cook - ABC

By any measure, CapitalSource outperformed both our direct competitors and the financial services industry in general, particularly in the context of the near collapse of the financial services industry where 19 of the 20 largest financial institutions in the country either failed or were bailed out by the government.

- John Delaney - head of marketing, TB

Insurance and funding traditionally drive capital investment. But in a world based on access, not ownership, the duration, value, cost and extent of financial services is distinctly different.

- Lisa Gansky - CEO, TB

Updated: 21. August 2017