What does reinvestment risk mean?

Reinvestment risk refers to:

No institutional investor can fully ** the market, and for institutional investors, reinvestment risk is especially important. For example, Project A has a 20-year period and an IRR of 15%, and Project B has a 2-year period and an IRR of 25%. For institutional investors, Project B may not be better than Project A.

This is because there are few investment projects of more than 15% in the next 5 years after the end of project B.

Reinvestment risk. Reinvestment risk reflects the impact of lower interest rates on reinvested income on fixed income** interest income, which is offset by the risk of higher interest rates, i.e., the interest rate risk mentioned earlier. Specifically, when interest rates fall, interest income from the fixed income of the investment is reinvested, and a smaller yield is obtained.

As a result, as the maturity date of the bond approaches, the reinvestment risk for investors increases. For long-term bonds, the risk is also relatively largest. The risk of long-term corporate bonds comes from market risk, and the longer the maturity period, the greater the market risk, that is, the greater the possibility of trading ** changes.

Therefore, investors have to take this long-term market risk if they want to get a high target rate of return. If an investor only buys short-term bonds and does not buy long-term bonds, there is a risk of reinvestment. Reinvestment risk is also an issue of interest rate risk.

For example, the interest rate on long-term bonds is 14%, and the interest rate on short-term bonds is 13%, and short-term bonds are purchased to reduce interest rate risk. However, when short-term bonds are withdrawn at maturity, if the interest rate is reduced to 10%, it is not easy to find investment opportunities higher than 10%, and it is better to invest in long-term bonds in the current period, and you can still get a 14% return.

In the process of bond investment analysis, we usually assume that the interest income realized during this period will be reinvested at the initial investment rate, without considering that the reinvestment yield is actually dependent on the future movement of the interest rate. When interest rates fall, the rate of return on reinvestment decreases, increasing the risk of reinvestment. When interest rates rise, bonds** fall, but the reinvested income on interest rises.

In general, bonds with longer maturities and bonds with higher coupon rates are relatively riskier to reinvest.

A way to avoid reinvestment risk.

If interest rates rise, short-term investments can quickly find high-yield opportunities, while long-term bonds can maintain high yields if interest rates fall. That is, to diversify investments in order to spread the risk and allow some of the risks to cancel each other out.

The term reinvestment risk is one of the core CMA vocabulary, and learning the CMA core vocabulary will make you feel comfortable in learning, which means: the risk of reinvesting future returns at a lower interest rate.

A venture capital firm is an enterprise that specializes in risk** (or venture capital) and effectively invests the funds under its control into high-tech enterprises with profit potential, and obtains capital returns through the latter's listing or merger and acquisition.

Venture Capital (English: Venture Capital, also translated as Venture Capital, abbreviation.

zhi is vc. ), mainly refers to the DAO providing financial support to start-ups and acquiring the company's equity.

is a form of financing. Venture capital is a form of private equity investment. Venture capital in a broad sense refers to all investments with high risk and high potential returns; Venture capital in the narrow sense refers to the investment in the production and operation of technology-intensive products based on high and new technologies.

Investors can realize investment returns as soon as possible and reduce overall investment risks by setting up venture capital companies, recruiting professional managers, evaluating investment opportunities, and assisting in the operation and management of invested businesses.

Venture capital mainly refers to the investment version that provides financial support to start-ups and obtains shares in the company.

Venture capital is also private equity.

A form of right investment. A venture capital firm is a professional investment firm that consists of a group of individuals with relevant technical and financial knowledge and experience. Venture capital provides capital to those who need it by investing directly in the equity of the investee company.

Venture capitalists are both investors and operators. Venture capitalists generally have a strong technical background, and they also have professional management knowledge and financial knowledge.

Angel investing is a form of equity capital investment. The term originated on Broadway in New York and was first used in the United States in 1978. Refers to a person with a certain amount of net wealth who makes an early-stage direct investment in a high-risk start-up with great growth potential.

It is a spontaneous and decentralized private investment method. These people who make investments are called "investment angels". The capital used for investment is called "angel capital".

It is mainly a way to provide self-financing support to start-ups and obtain shares in the company.

Venture capital is a form of private equity investment. A venture capital company is a professional investment company, which is formed by a group of people with knowledge and experience in technology and finance, and provides funds to those who need capital (investee company) through direct investment to obtain equity in the investment company.

Most of the funds of venture capital companies are used to invest in start-ups or unlisted companies (although the use of funds has been greatly relaxed in laws and regulations), and it is not for the purpose of operating the invested company, but only to provide capital and professional knowledge and experience to help the invested company obtain greater profits, so it is a high-risk and high-reward business that pursues long-term profits.

Venture capital (English: Venture Capital, abbreviated as VC) is referred to as venture capital, also translated as venture capital, which mainly refers to a financing method that provides financial support to start-ups and acquires shares of the company. Venture capital is a form of private equity investment.

The reason why venture capital is called venture capital is because there is a lot of uncertainty in venture capital, which brings a lot of risk to the investment and its returns. Generally speaking, venture capital invests in high-tech start-ups with strong technical expertise but little experience in company management.