Types of Investment Risk: Geopolitical Risk

Published on June 20, 2013

We are in the middle of a series breaking down the various types of investment risks. You can read the introduction here. We are posting one article covering one risk each weekday until the series is complete.

Yesterday we covered Macroeconomic Risk, and today we are covering...

Risk #9: Geopolitical Risk

Description: Geopolitical conflict can negatively impact investments by causing a shortage in certain industrial supplies, a sentiment shift towards fear that may decrease demand, direct or indirect damage to assets or businesses that are in or that depend on the general region of conflict or areas that may be affected by direct conflict.

Primarily Applies to... Commodities, Industrial Supplies, Real Estate and Businesses that are directly or indirectly impacted by potential conflict.

Real World Examples: Oil prices and the original Gulf War, Iraq War, War in Afghanistan, threat of War in Iran, etc. There is roughly estimated to be about a $30 premium in the price of oil due to conflict or potential geopolitical conflict in the Middle East.

Extreme Avoidance Measures: Buy Gold and go to Switzerland.

Potential Mitigations: Live and invest in countries that are militarily dominant and/or world superpowers.

Stay tuned, tomorrow's highlighted risk is: Natural Disaster.