Understanding the Risks of Investing in Stocks 

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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




Categories in Trading Mistakes

Lack of Trading Plan
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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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