Monday 3 September 2018

Managing Risks and Benefiting from Risks

Risks


There are numerous risks involved in investing in the stock market.
- Knowing that these risks exist should be one of the things an investor is constantly aware of.
- The money you invest in the stock market is not guaranteed.


For instance, you might buy a stock expecting a certain dividend or rate of share price increase.
- If the company experiences financial problems it may not live up to your dividend or price growth expectations.
- If the company goes out of business you will probably lose everything you invested in it.
- Due to the uncertainty of the outcome, you bear a certain amount of risk when you purchase a stock.


Stocks differ in the amount of risks they present.
- For instance, Internet stocks in 2000 have demonstrated themselves to be much more risky than utility stocks.


One risk is the stocks reaction to news items about the company.
- Depending on how the investors interpret the new item, they may be influenced to buy or sell the stock.
- If enough of these investors begin to buy or sell at the same time it will cause the price to rise or fall.



Managing risks

One effective strategy to cope with risk is diversification.
- This means spreading out your investments over several stocks in different market sectors.
- Remember the saying: “Don’t put all your eggs in the same basket”.


As investors we need to find our “Risk Tolerance”.
- Risk tolerance is our emotional and financial ability to ride out a decline in the market without panicking and selling at a loss.
- When we define that point we make sure not to extend our investments beyond it.


Benefiting from risks

The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy.
- It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!


The Internet has make investing in the stock market a possibility for almost everybody.
- The wealth of online information, articles, and stock quotes gives the average person the same abilities that were once available to only stock brokers.
- No longer does the investor need to contact a broker for this information or to place orders to buy or sell.
- We now have almost instant access to our accounts and the ability to place on-line orders in seconds.
- This new freedom has ushered in new masses of hopeful investors.


Still this in not a random process of buying and selling stock. We need a strategy for selecting a suitable stock as well as timing to buy and sell in order to make a profit.

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