Types of Investment Risks For Stocks
The business of investing is risky. When the valuation of the stock is being done, there are some risks which can be controlled and others existing beyond the scope of any control. Such risks have to be accepted and bore until the storms settle. An individual investor has to learn how to manage his portfolio. By ensuring that he is equipped with knowledge of the different types of risks available. An investor can ensure on how to minimize the risks that are manageable and protect his investments.
Risk Levels: Large scale risks
Large scale risks are categorized in two, namely systematic and unsystematic risks. Systematic risks refers to the type of risks that are inevitable and cannot be controlled. These risks cannot be predicted nor can they be reduced. An investor has to simply let them happen. Examples include increases of interest rates and legislation changes passed on by parliament from time to time.
This refers to risks that are particular to features of an asset. Unsystematic risks are major and unpredicted but they can be handled or eliminated by diversifying stocks. Such risks include the following, unforeseen strikes by employees and changes in management decisions.
Small scale risks
Smaller types of risks are varied, they too are worth mentioning to enlighten an investor to be able to reduce risk levels, they include the following.
-Liquidity risk referring to the uncertainty posed by a market, for a share to meet its financial obligation. This risk explains the inability posed by a security to miss securing a profit later when it is transacted.
-Business risk implies risk arising from the flow of a particular company’s income.Business risk is mainly affected by factors such as management, products and services offered, the company’s market position or the industry and relative environment.
Other relative risks also arise like financial risk relating to money debts that the company has to pay at a later date. Exchange rate fluctuating highly can also affect shares creating uncertainty to shares that require foreign exchange of currency. Risks can also be posed by national or political changes since major political changes can devalue an investment and decrease overall return. Market risks can also pose a danger with fluctuations in daily increases and decreases. Volatility of markets for stocks greatly impact such changes.
Investment and the business of stocks and transacting in stock trading is a risky business. A certain level of risk is reasonable for any business to realize better returns and earnings. As an investor you have to risk to realize profits, this is better than placing all you have in saving instruments. Diversifying your investments is your shield against different risks . When one inevitable risk surfaces diversifying in different companies’ stocks will give you stocks leverage against these risks. Strive to get more information for market situations and make wise informed decisions before you take a plunge in stock buying and investing. Remember the risk is rewarding but tread with caution.