principal risk

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Principal Risk

The risk that an investment will decline in value below the amount one invested. For example, if one buys a security for $10 per share, there is a principal risk that it will decline to $8 per share and never recover. Principal risk is virtually non-existent for bank accounts, which are guaranteed by the FDIC up to a certain amount. However, it is significant for investments like stocks and, to a lesser extent, bonds.

principal risk

The possibility an investment will be worth less when it is sold than when it was purchased. Principal risk is high for common stocks compared to most fixed-income investments such as bonds, preferred stock, and certificates of deposit.
References in periodicals archive ?
In its financial report, RAK Petroleum's chairman said principal risks and uncertainties facing the company remain largely unchanged from 2016.
In consultation with the Audit & Risk Committee and the Executive Team, the internal auditor is required to create a three-year plan of review activity that assesses the management of the principal risks and the adequacy of the system of internal control.
He added: "The principal risks and uncertainties facing the company are, on the whole, operational in nature.
The report focuses on how four key areas of information in particular were reported: the business environment, company strategy, key performance indicators (KPIs) and identification of principal risks and uncertainties.
Investors have long known that the principal risks faced by the GSEs were political risks--primarily the possibility that Congress would withdraw or modify some of the links they have to the government, and thus reduce the confidence of investors that the US government will stand behind the GSEs if they encounter financial difficulties.
Unlike financial institutions, where interest-rate risk and credit risk are the two principal risks, insurance companies have the issue of liability management in retaining risk from the policies on their books.
After a brief survey of macrofinancial conditions, the principal risks are examined.
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