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Risks of Investing

As a CI Direct Investing client, you benefit from the expertise of portfolio managers who are dedicated to selecting investments for your specific portfolio. All investments carry some degree of risk and the following is a summary of some of these risks. The list is not exhaustive and has been provided to indicate factors that can affect the value of your investments. In addition to the risks below, each fund or ETF in a portfolio has its own specific risks detailed in the investment documentation available on our website.

Various types of risk need to be considered at your various stages of investing for each of your different goals. You should understand the nature of an investment and the effect risk may have. Depending on the investment, the type of investment risk will vary. 

Investment risks may include, but are not limited to:

Business risk – the risk inherent in the operations of an entity or industry that you invest in; for example, risks may involve political and/or economic developments, changes in competitive landscapes, and changes in commodities prices due to changes in supply and demand.

Capital risk – the risk that you may lose money on your investments. 

Cash flow risk – the risk that future cash flows associated with a monetary financial instrument will fluctuate in amount, such as a fixed income security held with a floating interest rate. 

Concentration risk – the risk in holding a relatively limited number of investments or market sectors.  A relatively high concentration of assets in, or exposure to, a single or small number of issuers may reduce the diversification and/or liquidity of an account and increase its volatility. 

Credit risk – the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit risk applies to fixed income securities such as bonds. It is the risk that the government or company that issued the fixed income security will run into financial difficulties and will not be able to pay the interest or repay the principal at maturity. Accounts that invest in or have exposure to companies or markets with high credit risk tend to be more volatile in the short term. However, they may offer the potential of higher returns over the long term.

Currency risk – is the risk of losing money because of a movement in the exchange rate. It applies when you own foreign investments. Changes in the value of the Canadian dollar compared to a foreign currency or the imposition of foreign exchange controls will affect the value, in Canadian dollars, of any securities with foreign currency exposure.
Derivatives Risk – the risk that the value of an investment will decline or be less than the principal amount invested due to the use of derivative products.  Derivative products are highly specialized instruments that require investment techniques and risk analyses different from those associated with traditional securities such as stocks and bonds.  They are subject to a number of risks and, may be highly illiquid.   

Exchange Traded Funds Risks – the risk of loss due to not understanding the unique nature of “ETFs” which are securities that closely resemble index funds but can be bought and sold like common stocks. They are not mutual funds. ETFs come with many of the same risks as stocks and mutual fund investing, plus specific risks such as not understanding their tax structure (tax efficiency is one of the most promoted advantages of an ETF). 

Financing risk – the risk associated with the amount of leverage or debt used by an entity to finance its assets.

Foreign investment risk – the risk of loss when investing in foreign countries. Investments in securities of foreign issuers are subject to additional risks as compared to domestic securities. Investing in foreign and emerging markets involve risks that do not exist in Canada, including geo-political risks, higher transaction costs, and currency volatility risks. Foreign markets may be less regulated than in Canada and the U.S., and place restrictions on the movement of capital.

Fund risks – the risk of loss resulting from the specific risks associated with an investment in units of a particular fund, which are detailed in its simplified prospectus or other disclosure documents which are available on the CI Direct Investing website. 

Inflation risk – the risk of a loss in your purchasing power because the value of your investments does not keep up with inflation. Inflation risk is relevant if you own cash or fixed income securities such as bonds.   

Interest rate risk – the risk that the value of fixed income securities will fluctuate due to changes in prevailing interest rates. The value of investments in, or that have exposure to bonds, mortgages and other income-producing securities is primarily affected by changes in the general level of interest rates. 

Liquidity risk – the risk that an investment may not be readily saleable at close to its fair value, or at all. Difficulty in selling securities may result in a loss or reduced return. Reduced liquidity, in the case of a fund, may reduce a fund’s ability to satisfy redemption requests.

Leverage risk – the risk of loss if the value of the securities purchased declines more than the amount of money borrowed to purchase the securities. Using borrowed money involves greater risk than using cash resources only. Leverage increases both the possibilities for profit and the risk of loss. In addition, there is the cost of borrowing which may reduce the potential return. We do not lend you nor help you borrow money for investing. We do not use leverage or short selling directly in your account; however, the funds held in your account may use these strategies.

Market risk – the risk that the value of an investment will decline as a result of changes in market prices, whether the factors are specific to the investment or the overall market. The price of equity securities of certain companies or companies within a particular industry sector may fluctuate differently than the value of the overall stock market because of changes in outlook for those individual companies or the particular industry.

Short Selling Risk –the risk that those securities will not sufficiently decline in value during the period of the short sale to offset the interest paid by the investor and make a profit for the investor. Securities sold short may instead increase in value and losses for the short seller can be unlimited. Short selling has the risk of skewed payoff which is contrary to long term trends. In addition, shorting involves costs which include margin interest, borrowing costs, dividend payments and other payments. The investor also may experience difficulties repurchasing and returning the borrowed securities. 

Volatility – the risk that the value of securities in a portfolio may be negatively affected by unpredictable market fluctuation due to factors affecting markets generally or specific industries. Securities in a portfolio may be subject to price volatility.  Fluctuations affecting individual securities may increase the volatility of a portfolio.

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