Over my ~20-year career of investing I have distilled down all the risk you can take into five high-level categories. There is no other risk that can be taken that does not fit into one of these categories. If you know of one please let me know and I will consider adding it. Each of these categories is unique in the nature of the risk that is being taken and these categories provide a useful framework to think about diversification and portfolio construction. 1. Duration: a bet on the direction of interest rates. 2. Yield Curve: a bet on the shape of the yield curve. 3. [[Liquidity]]: trading cash for investment opportunities of varying duration. Includes all FX investments. 4. [[Credit]]: a bet on the credit worthiness of an enterprise 5. [[Optionality]]: are you selling options or buying options? None of these can truly be taken in isolation. For example, by buying 10-year US treasuries you are taking duration, yield curve, liquidity, and credit risk. For each risk you should should be paid a risk premium and understanding the magnitude and interrelatedness of each risk helps determine a fair premium. Explore Further: [[Risk]] | [[Risk Premia]] Tags: #portfolio-management