While external risks affect the prices of assets held in your portfolio, internal risks materialise in response to changes in your personal situation.
Ideally you invest some of your savings for the long term in order to secure your financial future, but what happens if your investment time horizon is unexpectedly shortened?
Maybe you lost your job, or you need to pay for emergency building works on your property, or something else which you didn’t expect has happened, requiring you to have extra cash at hand.
This need for cash may force you to sell some of your investments at a potentially unfavourable time (in the middle of a recession?).
This is known as time horizon risk, and something to bear in mind along with external portfolio risks when deciding how much of your savings you are comfortable with investing. The right amount is personal, depending on your personal circumstances and financial objectives.
Please know, the value of investments can go up as well as down and you may receive back less than your original investment, meaning, when investing your capital is at risk.
Disclaimer: At Evarvest we believe in making investing and investment education more accessible, but we don’t provide investment advice and individual investors should make their own decisions. While we try our best, we cannot ensure the accuracy of the information we provide.
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