A stock represents shares in a corporation and investing in stocks can mean you have partial ownership of the corporation. It can make you a shareholder and if you have a majority of shares, you will be able to affect the business decisions.
You can make a lot of money from stocks as you buy and sell profitable company shares if you invest intelligently. However, while stocks can give you a lot of rewards, they also carry a lot of risks.
One of the risks to be mindful of in stock investment is time. If there are badly timed decisions in stock investment, it could lead to a loss. You should be wary of the political and economic climate, stock pricings, stock market health, company performance and profitable stocks. This will allow you to analyze and invest at the best time for stock investment.
Another risk in stock investment has to do with stock volatility. This risk is referred to as market risks or involuntary risks. Volatility is the fluctuations of portfolio pricings due to stock market inflations or deflations and market changes. This is often beyond your control and will affect everyone in the stock market.
Volatility is brought about by geopolitics, for instance, a war, recession or electoral crisis in another geographical region can now have impacts on the US stock markets because of the globalized financial markets in the world economy.
Trade wars or sanctions can especially cause fluctuations in the overall world market and affect stock volatility. Monetary policies for market regulations, interest, and taxing can cause volatility as well. Economic ill-health in an economy, indicated by phenomena like inflation, can also have a major impact on the stability of financial, capital, and stock markets.
Another major risk involved in stock investment is the hubris of market investors – overconfidence. If you do not plan out and assess the financial investments in stock, you will be at risk of losses. You will need to spread out your investments over multiple stocks and industry.
It is essential to understand that the financial market may have a bigger scope than you think and if a new, possibly profitable industry comes around you should invest in it. Investing in Apple in the 1980s, for instance, would have been considered unwise by old-school thinkers.
When it comes to stock investments, you should also balance the amount of leverage you have. You should be wary of the fact that increased leverage will negatively affect the price movement, even if it can maximize profits.