Reinvestment Risk is the risk that future cash flows (like interest, coupons, or dividends) will be reinvested at a lower interest rate, reducing overall returns.
Reinvestment Risk mainly affects fixed-income investments such as bonds, fixed deposits, and debentures.
When interest rates fall, investors may not be able to reinvest their earnings at the same higher rate, leading to lower future income.
"You invest in a bond at 8%, but when coupons are received, market rates drop to 5%—your reinvested income earns less."