Investopedia defines counterparty risk as “the risk to each party of a contract that the counterparty will not live up to its contractual obligations.”
Now think about that for a moment…
Whether you realize it or not, you have to confront counterparty risk on a daily basis.
Will the power company deliver electricity to your home?
Will the city or municipality provide a clean and reliable water supply?
Will your health insurer pay up in the event of a claim?
While all of these issues are worth considering, there is perhaps no more important arena in which counterparty risk can have a significant impact than finance.
The modern financial world is a minefield of counterparty risk.
Nearly every aspect of your financial life-if not all-is fraught with various forms of counterparty risk.
Suppose you have a significant holding of stock in company ABC that you have built up over many years. Let’s further suppose that the per share value of that stock is $40 and you have amassed 10,000 shares for a market value of $400,000. While the stock has not appreciated much in price in recent years, it has paid an annual dividend and seems to be stable.
Then news hits that the company has been cooking the books and is in fact in serious financial trouble.
The stock could be punished severely on the next day’s open.
The following day, the stock opens down $15 per share at $25 and immediately starts sinking further. Before you know what has hit you, you sell all of your shares at $18 per share.
Your holding just saw more than 50% of its value erased in the blink of an eye.
Let’s now assume that the shares continue to decline, and eventually the stock is worth less than $10 per share.
The company begins to divulge the nature of its “accounting irregularities” and the financial hole it is in and decides the only way out is to declare bankruptcy.
Those still holding shares of the company stock are now wiped out completely.
Could such a scenario really happen to you?
Ask someone who invested in WorldCom…
Or perhaps the name Enron rings a bell…
While we could give many potential examples of counterparty risk, the reality is that if you own stocks, bonds, or other paper investments, you have some degree of counterparty risk.
What if we told you there are assets that carry ZERO counterparty risk? Assets that cannot default, go bankrupt, or otherwise fail?
Assets that have stood the test of time as a reliable store of wealth and value. Assets that are coveted and exchanged all over the globe.
The fact is that physical precious metals like gold and silver do not carry the counterparty risks associated with so many modern investments.
These precious metals cannot default, manipulate their value, mislead investors or go bankrupt.
They are real, tangible, hard assets with inherent value.
If you don’t own any assets like this currently in your portfolio, you may want to seriously consider starting an allocation in physical gold or silver.
Buying and holding precious metals like physical gold and silver has never been easier. In fact, you can even take advantage of the potential benefits of an IRA account while building a precious metals portfolio.
Don’t take chances with your wealth and financial future. To learn more about the potential benefits of physical gold and silver ownership and how you can begin acquiring these key precious metals in your IRA account, speak with an Advantage Gold account executive. Don’t wait for another stock market collapse, corporate bankruptcy or bond default before taking action. Call us today at 1-800-341-8584.
Tags: advantage gold, bankruptcy, bonds, counterparty, default, gold, paper assets, RISK, silver, Stocks