Investing term

What is Default risk?

The risk that a bond issuer fails to make a payment on time.

Default risk is the chance a bond issuer fails to pay interest or principal on time. It's the central risk of lending: governments in their own currency rarely default, shaky companies do so far more often. Credit ratings exist to grade this risk, and bonds with higher default risk must offer higher yields to attract buyers.

For example

A junk bond yields 9% while a government bond yields 4% — that extra 5 points is compensation for much higher default risk.

Default risk is taught hands-on in Stage 4 — Stocks, Bonds, Cash & Alternatives.

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Related terms

AlternativesInvestments outside the core stocks/bonds/cash mix — REITs, commodities, gold, crypto.BondA loan from you to an issuer (government or company), repaid with interest on a known schedule.Capital gainThe profit from selling an investment for more than you paid.CommodityA raw physical good like gold, oil, wheat, or copper — priced by the ounce, barrel, or bushel.
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