principal risk

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 ?
The Financial Conduct Authority has announced that it has hired a former HBOS principal risk adviser, Karina McTeague, to lead its supervision of retail banking operations.
The study analysed data on more than 6,000 individuals in the Doetinchem Cohort Study, which began in 1987 with follow-up examinations after six, 11, and 16 years.(1,2) The principal risk factors measured were body weight, blood pressure, total cholesterol levels (for hypercholesterolaemia) and levels of high-density lipoprotein (HDL) cholesterol, which is considered "protective".
It may also be useful for those who are invested in bond funds with longer maturities but want to reduce the potential principal risk from rising interest rates."
But Mr Matheson also warned: "As always our principal risk in the short term is the threat of adverse market movement.
"Uncertainties surrounding Egypt's political transition remain the principal risk we see facing investors," Citigroup said yesterday.
The principal risk is that market turmoil will damage the real economy through declining asset prices, tightening credit crunch with a re-pricing of risk and weaker confidence."
For the real economy, the principal risk to these projections is a slower recovery in neighbouring countries, resulting in weaker exports.
During 1993 and 1994, D directed the Fund to invest several million dollars in debt instruments - principal risk securities - commonly known as derivatives.
In terms of balancing the policy risks that were involved, a prompt move would provide some insurance against what these members viewed as the principal risk in current circumstances - that of rising inflation.
"We continue to believe that the principal risk at Smith's is that the majority of its stores are clustered in markets that are likely to remain very price competitive over an extended period of time.
Those concerned about the plight of real estate and principal risk, can still participate solely in CMO residuals where the mortgage certificate collateral is guaranteed by government or government-sponsored agencies (GNMA, FNMA, or FHLMC) reducing this variable to its lowest possible level.
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