What are the two common risk for bond investors?
There are more than two risks to consider when investing in bonds. Four key risks are:
- Interest rate risk – the risk that changes in interest rates will affect bond prices. This is a risk if you need to sell a bond before its maturity date.
- Inflation risk – the risk that the return you earn on your investment doesn’t keep pace with inflation.
- Market risk – the risk that the entire bond market declines.
- Credit risk or default risk – the risk that the company or government issuer isn’t financial stable and won’t be able to make interest payments or pay back the face value of the bond at maturity.
Learn more about the risks of bonds, and ways to manage this risk.