We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is Valuation Risk?

Mary McMahon
By
Updated May 17, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Valuation risk is the risk that a financial asset is overvalued and will fetch less than expected when it matures or is sold by the person who holds it. Factors contributing to valuation risk can include incomplete data, market instability, and poor data analysis by the people responsible for determining the value of the asset. This risk can be a concern for investors, lenders, and other people involved in the financial industry. Overvalued assets can create losses for their owners.

A number of steps are taken to reduce valuation risk. People tasked with determining fair and reasonable values for assets work to collect as much data as possible in order to have a complete and detailed picture. They also apply a number of data analysis techniques to the exploration of that data with the goal of identifying pitfalls by approaching the valuation from multiple perspectives. Individuals determining whether they want to buy assets may do their own value analysis to see if the stated value reflects the current available information.

Even with steps to avoid obvious problems, people can still be exposed to valuation risk. An investor may decide not to invest in a company that appears to be overvalued, but might still run into trouble by purchasing a bond that doesn't pay out, or being involved in a pooled investment product that does not generate the expected return. The people responsible for managing the asset, such as administrators of a mutual fund, are tasked with limiting valuation risk for their investors, but they cannot control for factors like a sudden economic downturn or the downfall of a company the fund has invested in.

Government regulators supervise the valuation process for things like initial public offerings and bond issues. They use reports generated by companies preparing for such offerings to confirm that the offering is fairly valued and does not expose investors to unreasonable risks. They cannot control for value risk once items are traded on the open market. Investors can drive up the price of a stock to the point where there is a risk of taking a loss by purchasing it or stock values can fall suddenly in response to changing economic conditions.

Investors at all levels are concerned about valuation risk, from individuals making decisions about their retirement portfolios to institutional investors. Careful analysis and research is used to reduce the chances of taking a loss on an asset. For inexperienced investors, financial advisers are available to provide guidance on sound investments.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Mary McMahon
By Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGeek researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

Discussion Comments
Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a...

Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.