Types of Portfolio Risk, Part 3. Now our next risk is geopolitical risk. And it's a risk that events in various parts of the world could affect your assets, your investment return. And this has become more and more important over the last several decades as global economies have become more and more integrated. Now here are some examples of today's, you know, top risks. US/China relations, two of the biggest economies in the world, and how they get along. Global trade tensions and how that could affect economic growth throughout the world. And of course, any major cyber attacks. Now, as you would expect, almost all asset classes are exposed to geopolitical risk. However, diversification is one of the strongest defenses against geopolitical risk, since losses in one asset class can be at least partially absorbed by gains in another. And here's a hypothetical example. Let's say, because of a geopolitical event, global equity markets sell off, with potentially Chinese and emerging market equities underperforming the most. Well, emerging market currencies would potentially then weaken versus the US dollar, while US treasuries and gold may rally in a bid for perceived safe haven assets in that environment. Next up is reinvestment risk. And reinvestment risk is the risk of having to potentially reinvest income or principal that was returned to you at a new lower rate than your previous investment. And investors that would be most concerned about reinvestment risk are those that are dependent on the income from their portfolios. And if in fact rates decline and they're forced to reinvest at lower rates, their cash flow will also decline. Let's go through a quick example. Let's say an investor buys a bond when interest rates in the market are right around 4%. And he buys, let's say $100,000 of this bond with an expectation of receiving 4%, or $4,000 a year, in annual income. Now let's say that while the investor is holding this bond market rates drops in half to 2%. Well the good news is that bond holders still receives that 4% in interest payments as agreed until maturity. But the problem is, once that bond matures, he or she is forced to reinvest at that lower interest rate of 2%, which essentially would be cutting his income in half. Now, investments that are most exposed to reinvestment risk are floating rate bonds, callable bonds, or short-term bonds. Investors can try to reduce reinvestment risk by investing in essentially the opposite of those bonds that were just mentioned, non-callable securities, long-term securities, or diversifying across maturities. And lastly, currency risk, also known as exchange rate risk. It's the risk of losing value in your international investments from changes in FX, or exchange rates. And that's because returns can be driven by the fluctuations in the relative valuation of the currencies. If, for example, you have an international investment and if the value of the dollar increases and the foreign currency therefore decreases, it would take more of the foreign currency to obtain one dollar and this would be a drag on investment returns. And currency risk is gonna be a factor in all non-domestic investments, regardless of the currency that they're quoted. For example, from the point of view of a US investor, all non-domestic investments, even if they're quoted in dollar terms, will be exposed to currency risk. Now, investors can always reduce currency risk by using hedges and other techniques designed to offset any currency-related gains or losses, but that would add costs and is actually very expensive.