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