Posted by Tiffany Gaskin

Major Risks Every Stock Investor Faces

Major Risks Every Stock Investor Faces

There is no investment that is risk-free. However, being smart with an investment that meets your goal can bring down stock and bond risk, provided it meets your risk profile. Although, there are other risks that are beyond your control. Many of these affect the general market, and investors are not left with many options. 

This article discusses four main risks investors will likely come across, along with strategies to deal with them.


Economic Risks

No one has any control over the market, which can go wrong at any time. This is a common risk every investor needs to come to terms with. After the 9/11 terrorist attack and the market bust of 2000, the economy took a downturn, leading to the loss of considerable percentages in the market. Before the market could return to levels, it was before the terrorist attack, and it took years. Again, there was a bottom fall in the financial crisis of 2008.

Young investors many times will prefer to ride out the storm. An investor that can increase their position in a reliable company has the best time for it. When the domestic market is down, foreign stocks provide a good spot. Besides, globalization has made a couple of US companies earn their profits offshore. The 2008 financial collapse, however, did not offer any safe haven.

Older investors had a lot to lose, especially those at or close to retirement. Failure to shift a considerable part of the assets to bonds or fixed income could be devastating if there is a significant downturn. This makes portfolio diversification important. 


Risk of Inflation 

Sadly, no one can weather inflation, which can trigger a recession and destroy value at an excessive rate. While many people believe that man controls inflation, trying to cure tremendous interest rates at some point might be as terrible as the problem. Inflation might be knocking on us when you consider the vast funds' government borrowed to fund the stimulus packages.

Over the years, investors have been known to return to hard assets like precious stones like gold, real estate, etc., when inflation arises. This is due to their resilience and strength to withstand the effect. Investors on fixed income suffer the most due to inflation since their income stream reduces.

Stocks are protected the most against inflation as companies can adjust their process to take care of inflation. If there is a global recession, the implication is that stocks will struggle for a long time before the economy will be ripe for higher prices. 


Market Value Risk 

This is what happens when the market is against your investment. This is the case that occurs when the market concentrates on other stuff and leaves your investment for good. This is also when the market collapses since both good and bad stocks take the hit as investors rush in and out of the market.

Some investors consider this a good thing and consider it an opportunity to accommodate great stocks when the price is not coming down. Also, there is no chance to advance your investment flatline series of months later if other market parts are rising. 

One should not get caught with the entire investment in a part of the economy. If you spread your investment over several sectors, there is a good chance of taking part in advancing any of your stock with time. 


Risk of Excessive Conservation 

You should be a careful and conservative investor; there is nothing wrong with it. Not taking risks, on the other hand, could prevent you from reaching your financial goal. One might need to finance 15 to 20 years of retirement with the nest. Besides, having the savings in low-interest savings might not do the job.


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Tiffany Gaskin
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