Understanding Risk

The Risk of Not Understanding Risk

An increasing number of Americans are saving for retirement through employer-sponsored retirement plans. Given the volatile stock market of recent years, many of these individuals may be wondering about the investments they’ve chosen and their potential risks. But market ups and downs are only one kind of risk.

So what do you need to know about risk? First, remember that investments that have the potential to generate higher returns also typically carry higher levels of short-term risk, but that the risk involved with these investments may decline over longer holding periods. Second, be sure you understand some of the common types of risk.

Market Risk
Market risk is the possibility that your investment will move in tandem with the overall market. For example, if the stock market experiences a decline, the value of your stock investment may decline.

Investments in international stocks are subject to such risks as currency fluctuations, foreign taxation, differences in financial reporting practices, and potential changes in political and economic conditions.

Inflation Risk
Risk isn’t just the possibility of losing principal. It can also be the possibility that you won’t have enough money to meet your needs. Inflation, for example, could cause prices to rise at a higher rate than the value of your investments and leave you without the purchasing power you need during retirement. To fight inflation, you may need to pick investments that have the potential to generate returns that outpace inflation.

Credit Risk
Bond fund investors, in particular, need to be aware of credit risk. Remember that a bond is essentially an IOU from a borrower - a government agency or corporation, for example - to a lender (the investor). Credit risk is the possibility that a bond’s issuer will not be able to make interest payments or repay the principal, or initial investment, when due.

Interest-Rate Risk
When you hear news about the Federal Reserve Board (Fed), listen closely — its decisions could impact your investments. Bond prices tend to move in the opposite direction of interest rates, so when the Fed decides to raise interest rates - or when interest rates increase for other reasons - bond prices usually fall, and vice versa.

This information is authorized for use only in the case of concurrent or prior delivery of the offering prospectus of the Fund. You should consider the investment objectives, risks, charges, and expenses of a Fund carefully before investing. A prospectus containing information about a Fund (including its investment objectives, risks, charges, expenses, and other information about the Fund) may be obtained here. The prospectus should be read carefully before investing in a Fund.

The Seligman Funds are managed by J. & W. Seligman & Co. Incorporated (Seligman). The Seligman Mutual Funds are distributed by Seligman Advisors, Inc. Seligman Services, Inc. provides client services to Fund shareholders. Seligman Advisors, Inc. and Seligman Services, Inc. are wholly-owned subsidiaries of Seligman.

Distributed by Seligman Advisors, Inc.