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What are the risks associated with investing in bonds?

Curious about Bonds

What are the risks associated with investing in bonds?

There are several risks associated with investing in bonds, some of which include:

1. Interest rate risk: As interest rates rise, the value of existing bonds decreases, leading to a decline in the bond's price.

2. Credit risk: The possibility that the bond issuer may default on the payment of principal or interest.

3. Inflation risk: The risk that inflation may erode the purchasing power of the bond's interest payments and principal.

4. Liquidity risk: The possibility that the investor may not be able to sell the bond when needed, or may have to sell at a loss due to low demand.

5. Call risk: The risk that the issuer may "call" or redeem the bond before its maturity date, leaving the investor with the risk of reinvesting the principal at a lower interest rate.

6. Currency risk: For investors investing in bonds denominated in foreign currencies, the risk that fluctuations in exchange rates may affect the value of the investment.

It is important for investors to be aware of these risks and to consider them when constructing their investment portfolios.

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