What are the three main risks in an investment portfolio?

The three main risks in an investment portfolio are market risk, liquidity risk, and credit risk.

Market risk refers to the potential for losses due to fluctuations in the overall market or specific asset prices. This is inherent in all investments, as changes in economic conditions, interest rates, or investor sentiment can impact asset values.

Liquidity risk involves the possibility that an investor will not be able to buy or sell an investment quickly enough to prevent or minimize a loss. This risk is particularly significant for investments in smaller or less liquid markets where trading volumes are low, making it challenging to enter or exit positions without affecting prices.

Credit risk pertains to the potential that a borrower may default on a loan or fail to meet contractual obligations. This risk is particularly relevant for fixed-income investments and other debt instruments, where the issuer’s ability to meet its obligations is a critical concern.

The combination of these three risks provides a comprehensive view of the potential threats to the value and performance of an investment portfolio, making the understanding of these risks crucial for effective treasury and investment management.