Understanding the Risks of Investing in Stocks
Investment Snapshot
* The greatest risk of investment in common stock is losing
your entire investment.
* Historically, the volatility of common stocks is highest
over a one-year holding period and declines as the length
of the holding period increases.
* Holding a diversified portfolio of common stocks over
long holding periods reduces the risk of loss significantly.
From the Investment Snapshot you might think that investing in
common stocks is the same as gambling. Yes, you can invest in a
stock that goes bankrupt and lose your investment, such as the
case for shareholders of Enron and the original WorldCom.
However, you also could have invested in Hansen Natural, whose
stock price increased by 293 percent over the one-year period from
June of 2005 to June of 2006. Over long periods of time, investments
in a diversified portfolio of common stocks have earned positive
returns, whereas long-term gambling results in negative returns.
Understanding what the risks of investing in common stocks are
and what you can do about them will help you to manage your
investments to earn positive returns. In essence, your objectives,
personal characteristics, and time frame outline the level of risk
you can absorb, which then determines the choice of investments
to make.
KEY CONCEPTS
* Types of investment risk and what you can do about risk
* The relationship between risk and return
* Measures of risk
* What you can do about risk
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Categories in Trading Mistakes
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Lack of Trading Plan
Planning plays a key role in the success or failure of any endeavor
Using too much Leverage
Determining the proper capital requirements for trading is a difficult task
Failure to control Risk
Refusing to employ effective risk control measures can ensure your long-term failure
Lack of Discipline
A lack of discipline can destroy even the most talented and best prepared trader
Useful Advices to Beginning Trader
You can control your success or failure
All about Stocks
Encyclopedia about Stocks. That you should know about Stocks before starting
Forex Glossary
All terms about Forex market
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