The risk involved in equities

You can lose a lot of money investing in equities. 

That is why it is the asset class carrying the highest risk. 

If you had bought shares during the height of the Internet boom in March 2000, you would have lost 72% if you had sold them 18 months later!

Equities are affected by many risks, including:

• commercial risk, for example, interest rate changes and trade cycles
• political risk, for example, negative sentiment about Third World countries
• market risk, for example buying shares at the top (when they are too expensive) and selling them at the bottom (just before prices start to increase again).

Anyone who has invested in equities over the past few years knows how it feels to be on a roller-coaster ride. 

• In the end of the last century, investors witnessed huge stock market crashes (in 1987, and again in 1998), interspersed with a spectacular rise in share prices as investors started to become hyped-up about the new economy and Internet stocks. 
• Then, of course, a major downswing was experienced in September 2001 after terrorist attack in the USA. 
• Due to low interest environment for many years following 911, the US stock market crashed in 2008 due to the subprime credit crunch.