Definition of Reinvestment Risk
What is Reinvestment Risk
Reinvestment risk is the risk or probability that an investor will be unable to reinvest the cash flows received from an investment at a rate that is equal to or comparable to the current rate of return. While reinvestment risk is most commonly associated with bonds, it can apply to any cash-generating investment.
Callable bonds or a bond with a sinking fund provision are especially vulnerable to reinvestment risk since these bonds are typically redeemed when interest rates decline.
Glossary of Terms and Phrases
A financial dictionary or glossary is an essential tool to better understand the meaning of a specialized term or phrase. It would obviously make life much easier if everyone spoke the same language and used the same financial terms and phrases but that is not realistic.
We learn new languages to communicate with each other, transact business globally and to appreciate other cultures. Global finance is a specialized language that if understood and mastered, it will provide benefits that help to decrease risk and improve investment returns. Financial literacy is the foundation of developing good investment strategies and sound decision making.