| It can be a risky business investing in the stock | | | | recessions. We like to believe that we can control |
| market. There is risk. And all you can do about it is | | | | inflation, but sometimes the cure is just as bad as |
| accept that there are some risks that you have | | | | the problem. Higher interest rates can help to mitigate |
| control over and some that you can only try to | | | | inflation, but they can also hit the market in a |
| prevent. | | | | negative way. |
| The key is to have pre-set risk levels and a | | | | Investors usually retreat to hard assets, such as real |
| management plan in place. When you make | | | | estate, when inflation gets high. But in most cases, |
| thoughtful investment selections that meet your | | | | stocks are usually a pretty fair protection against |
| goals you are usually keeping your stock risks at an | | | | inflation. the idea is that companies have the ability to |
| acceptable level. This is because you are consider risk | | | | adjust prices to the rate of inflation. There are some |
| when making decisions. | | | | industries and sectors that adjust more than others, |
| However, you have to be aware that there are | | | | so you should diversify your investments. Investors |
| inherent risks that you cannot control. Most of these | | | | are hurt by inflation by the erosion of the value of |
| risks result in investors having to simply ride out the | | | | the dollar. Those on a fixed income will suffer the |
| storm. For the long term investor, many risks are | | | | most. That is why it is a good idea to keep a portion |
| downplayed by the time factor. | | | | of your assets in stocks, even when retired. |
| There are four major risks that investors face when | | | | Risk #3: Market Value |
| investing in stocks. | | | | Market value risk occurs when the market turns |
| Risk #1: The economy | | | | against your investment, or even ignores your |
| The most pressing risk of investing in the stock | | | | investment. For example, the market often chases |
| market is that the economy can always take a | | | | the next hot stock, leaving many good companies |
| downturn. A combination of factors can cause the | | | | behind. Some investors will use this to their |
| market indexes to lose significant percentages. In | | | | advantage -- buying stocks before the market |
| fact, we are just now returning to the levels of the | | | | realizes their potential. |
| pre-September 11 market. | | | | However, it can also cause your investment to |
| In general, the economy is just going to happen. | | | | flat-line while other stocks rise. |
| There is nothing you can do to control it. Most young | | | | Diversification between different sectors of the |
| investors are best off if they just ride out the | | | | economy is key. When you spread out your |
| downturns. Investing for the long run really helps. In | | | | investments, you have a better chance in |
| fact, many investors use the downturns to pick up | | | | participating in growth. |
| stocks that are good solid companies at a slightly | | | | Risk #4: Becoming too conservative |
| lower price. | | | | There is nothing wrong with being careful. However, |
| If you are an older investor, a major downturn of | | | | you can go too far in how conservative you are. If |
| stocks can be devastating if you haven't moved the | | | | you never take any risks, it is probably that you will |
| significant portion of your portfolio from the stock | | | | not reach your investment goals. You know that |
| market and into bonds or fixed-income securities. This | | | | investing in a savings account for the next 20 years |
| is where management and risk tolerance really comes | | | | isn't going to give you enough of a return to retire. |
| into play. Don't put things off. You never know about | | | | You have to be willing to accept some risk. Just keep |
| the economy. | | | | it under a close eye. |
| Risk #2: Inflation | | | | When you know the risks of investing and research |
| Inflation will always be a risk to investors. It hits | | | | your stock potentials, you make decisions that help |
| everyone, no matter their savings or portfolio size. It | | | | you not only mitigate risk, but eliminate a large |
| will destroy the value of your dollar. It is the cause of | | | | portion of stress as well. |