The core risk of each investment
Every type of investment has one risk built into how it works.
For educational purposes only. Simplified illustrations to help you understand how things work. Not financial, investment or tax advice, and not a recommendation.
Interest rate risk
- Also: Credit risk
- Also: Reinvestment risk
Fixed payments: when interest rates rise, existing bond prices fall.
See it: $1,000 of bonds when interest rates move
Interest rates fallInterest rates rise
Value$1000no change
Interest rates up → bond price down, and the reverse. (Illustrative, 7-year duration.)
- Bonds: interest rate risk
- Stocks: market risk
- Foreign holdings: currency risk
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