For example, after a national downturn in auto sales, the steel industry may suffer financially. Tax risk is the danger that rising taxes will make investing less attractive. In general, nations with relatively low tax rates, such as the United States, are popular places for entrepreneurial activities. Businesses that are taxed heavily have less money available for research, expansion and even dividend payments. Taxes are also levied on capital gains, dividends and interest.
Investors continually seek investments that provide the greatest net after-tax returns.
Political risk is the danger that government legislation will have an adverse effect on investment. This can be in the form of high taxes, prohibitive licensing, or the appointment of individuals whose policies interfere with investment growth. Political risks include wars, changes in government leadership, and politically motivated embargoes. This concludes our look at the major risks of investing. All Rights Reserved.