Reinvestment Risk is the risk that an investment will not be able to generate the same level of returns when the cash flows from the investment are reinvested as when they were originally earned. This can occur if the investor is unable to find reinvestment opportunities with returns that are equal to or greater than the original investment.For example, an investor who owns a bond that pays a fixed interest rate may face reinvestment risk if they choose to reinvest the interest payments into a new bond that has a lower interest rate. In this case, the investor would be receiving lower returns on their reinvested cash flows compared to the original investment, which could negatively impact the overall return on their portfolio.Reinvestment risk is typically more relevant for investments that generate periodic cash flows, such as bonds, dividend-paying stocks, and real estate investment trusts (REITs). It is generally less of a concern for investments that are held until maturity or for those that do not generate regular cash flows.
