Risks that you should take care while investing

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By: skyden.dredge
on 10th Jun,2011

Had the market been so predictable, it would have lost its usual glitz, glamour and alacrity.
Risks that you should take care while investing


Even the best of the market analysts can't always predict its behavior correctly. Had the market been so predictable, it would have lost its usual glitz, glamour and alacrity. In other words, it would have culminated into a morose and damp activity center. After the demise of Osama Bin Laden, many of you thought that the market will take an appreciable up-tick but that did not happen in practice. 

However, despite the inherent uncertainties associated with the market, it is also true that many smart and intelligent investors have amassed money through investing in stocks. So, it is not insane to evaluate the prospects of all the stocks that you actually hold. You need to check whether or not the stocks can withstand potential shocks and see if a particular stock is more exposed to any sector or any country.

Even the smartest of the investors often encounter troubles by ignoring what could actually go wrong. Investing is not only about identifying opportunities but also about assessing risks. Here are the biggest risks in investing that you face.

    Risks related to rate of interest and inflation

The rate of interest depends very much upon commodity and energy prices. Again, there is the effect of the speculators. When the market goes in the hands of the speculators, prices can rise or fall in no time. Then there is interest rate risk. Given the current market situation, chances are less that rate of interest will go down. A rise in the rate of interest will reduce the price of bonds, negatively impacting the bond investors. Given this situation, it is advisable that you should diversify your portfolio in various options. Your investment may include cash, inflation-protected bonds, commodities, real estate investment, investment in US and other international stocks.

    Risks associated with unanticipated disasters, wars and other upheavals

The recent developments in Japan and in the Middle East could have serious implications on the stock market behavior in the rest of the world. The crisis in the Middle East can have a snowballing effect on the supply of oil and petroleum products. The natural disaster in Japan has had negative impact on the automobile and the technology companies. So, it is recommended that you may invest in gold and other precious metals. You can invest in gold via gold exchange-traded funds also.

    Inherent risks associated with the market

Market risks are unavoidable. The market risks can be minimized through diversification. While investing, always look for a margin of safety and don't get carried away. Make sure that your investment don't overlap and avoid investing in stocks belonging to the same sector.

While investing, keep these simple things in mind. These will surely help you build wealth through stock market investing.

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