If you dont know what counter-party risk is, heres a short description: In any trade/investment involving two or more parties, the risk to the buyer is whether the counter-party can pay up.
It seems simple enough but have you ever considered that stocks and bonds you own may not be able to give you your money back when its crunch time?
Its usually not the case for most major corporations (with assets like buildings, inventory, manufacturing plants, etc.) who get into financial problems. (Cough! TESLA, Cough!)
However, when a push comes to a shove, all you own is a piece of paper that represents a promise to pay you whatever the Market Price of that paper is worth.
Dont worry, Im not saying stocks or bonds are worthless. Im trying to get you to understand how a counter-party can default on their promise leaving you holding the bag.
The easiest illustration of this owning gold. Specifically, physical gold and not a piece of paper saying you own some. (We explain this in detail in an article titled Gold. If you dont hold it, you dont own it. (HERE)
If you own (and hold) gold coins, there is no counter-party risk of default. History proves gold has been around for over 5,000 years and has never defaulted.
Compare that with the $1.4 Quadrillion derivatives market that backs up most of our financial system.
Consider these two questions: 1) Whats the chance someone can cover that bet? 2) How many people actually understand what a derivative is?
Yet, millions of people invest with no clue of how to handle counter-party risk.
The boyz in the Club understand the risks and dont want you to know how to avoid them.