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investing for beginners

investing risks

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overview

Anyone trying to teach you about investing needs to be straight with you and tell you about the risks. We do this not to discourage, but to keep you informed. Believe us, this is important.

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We’ve spent a fair bit of time talking about the ways in which you can invest and make some money, but it’s really important to know that there are significant risks that come with investing. You are certainly not guaranteed to make money. Even savvy, experienced investors lose money. And while you can mitigate some risks through following a couple key rules of thumb, investing in stocks will never be a risk-free endeavor. In fact, pretty much all investing decisions require assessment of your own risk appetite. Let’s talk through some of the biggest investing risks.

 


Market Risk

The biggest risk is one you’ll recognize having lived through the hellscape that is 2020. The market can crash for issues in the global economy or global events that cause businesses to suffer–and in times of recession, few stocks are spared a dip in value. Things like public health crises, natural disasters, poor economic reports and prognostications by experts can all bring about a drop in stock prices–and you can lose a lot of money for reasons completely out of control of the company whose shares you’re buying.

 


Lack of Diversification

Another key risk: lack of diversification! If you put all of your eggs in one basket, you are at higher risk of losing money than if you spread it around.

 

For example, if you invest $500 in one company, you’re at a higher risk to lose money because one negative indicator can send that stock plummeting. But, if you’ve invested $500 in multiple companies from different industries, the likelihood that all of them decline simultaneously can be much less than if you invest it all in one place.

 


Political/Regulatory Risk

What about political risk and regulatory risk? You may invest in an infrastructure/construction company that wins a lot of government contracts, but all of a sudden there’s an election and someone new is in charge and changes plans. And that stock’s gonna tank. You might find a pharmaceutical company that is working on a cure for TikTok-induced carpel tunnel syndrome…but if that drug isn’t approved by the FDA, the stock is going to tank as well.

 

Be aware of these risks, but don’t be afraid. Up next…how to evaluate a stock. Get fired up!

 

 

Source(s): Investor.gov

No account yet? Register

investing for beginners

investing risks

Anyone trying to teach you about investing needs to be straight with you and tell you about the risks. We do this not to discourage, but to keep you informed. Believe us, this is important.

We’ve spent a fair bit of time talking about the ways in which you can invest and make some money, but it’s really important to know that there are significant risks that come with investing. You are certainly not guaranteed to make money. Even savvy, experienced investors lose money. And while you can mitigate some risks through following a couple key rules of thumb, investing in stocks will never be a risk-free endeavor. In fact, pretty much all investing decisions require assessment of your own risk appetite. Let’s talk through some of the biggest investing risks.

 


Market Risk

The biggest risk is one you’ll recognize having lived through the hellscape that is 2020. The market can crash for issues in the global economy or global events that cause businesses to suffer–and in times of recession, few stocks are spared a dip in value. Things like public health crises, natural disasters, poor economic reports and prognostications by experts can all bring about a drop in stock prices–and you can lose a lot of money for reasons completely out of control of the company whose shares you’re buying.

 


Lack of Diversification

Another key risk: lack of diversification! If you put all of your eggs in one basket, you are at higher risk of losing money than if you spread it around.

 

For example, if you invest $500 in one company, you’re at a higher risk to lose money because one negative indicator can send that stock plummeting. But, if you’ve invested $500 in multiple companies from different industries, the likelihood that all of them decline simultaneously can be much less than if you invest it all in one place.

 


Political/Regulatory Risk

What about political risk and regulatory risk? You may invest in an infrastructure/construction company that wins a lot of government contracts, but all of a sudden there’s an election and someone new is in charge and changes plans. And that stock’s gonna tank. You might find a pharmaceutical company that is working on a cure for TikTok-induced carpel tunnel syndrome…but if that drug isn’t approved by the FDA, the stock is going to tank as well.

 

Be aware of these risks, but don’t be afraid. Up next…how to evaluate a stock. Get fired up!

 

 

Source(s): Investor.gov

lessons in this course

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