Many people invest in the stock market with the hope of making a profit now and then. What most people do not consider is the risk involved with stock investments. It may seem easy to make a profit out of the stock, but losing your money on the investment is easier
Here are the risks concerned with stock investment
If the business you have invested in is not doing well, the stock risks are very high. This risk is very high if you have invested your stocks in a sketchy business, a poor management, and a company with minimal profit returns. Before you invest in any company’s stocks do your research and get some financial advice. You can evade or manage this risk by diversifying your investment options. If you invest in many businesses, the chances of all of them falling under a business risks are lower compared to investing in one business.
Interest rates risk
Interest rates change with time depending on different factors. Interest rates can positively or negatively affect the market; it all depends on the direction of change. If interest rates are high, a company may find it difficult to carry on daily transactions. Borrowing loans will also be difficult and some companies may face low profits. An increase in interest rates affects the bond market negatively, which in turn affects the corporate bonds
The market risk is based on the everyday fluctuation of the market price. The market index goes up and down the entire day, which affects the returns of the stock. If the market price goes down, the prices of stocks may go down and vice versa. The market risks are shorter in the long term compared to the long run
When the market inflation increases, the prices of the goods and raw materials will be high. This can affect the cost of production in many companies. For some industries, inflation rate is too high and may have adverse affect when it comes to maintaining consumers. When there are no customers there is no profit made which may affect the stocks of the company.
The liquidity risk
Any people make the mistake of investing in stock before checking the liquidity of a company. Companies with big loans may face mismanagement and find it hard to pay their bills , cut the dividends or go bankrupt.
The taxability risk
The taxes of the company you invest in might increase or decrease at any moment depending on the laws set by the government. This fluctuation in taxes can change the company’s stock prices. Keep in mind that some companies are taxed hire than other depending on their business which means their profit may be lower at times. When the tax is entirely controlled by the government, there is not much the company can do when they have low profits
Some companies are highly regulated compared to others. These regulations are imposed on some industries and may make them risk factors. If a company loses its license or profits due to regulatory risks it may affect the stock price on a large scale.
Now that you are informed on the risk, you should do your research to make conscious decisions about investing your money n the stock markets.