August 3, 2015

Investing in Stock Market has Risk

Business Table
Photo by Unsplash from, Public Domain License CC0 1.0

Some of the new investors in stock market would probably think that once you put your money in bunch of stocks, your investment would automatically grow. Looking at the history of stock market, we have seen series of booms and bust. At some cases, a one wrong move in stock market would take you, more than 10 years to recover the lost in your investment; there are even scenarios of lost of more than 25% in investment in just three months. Given the historical learning, new investor should put in mind that doing investment in stock market should be done carefully. Investment decision should be based on sound research.

Stock market can be said as one of the simplest way to invest, but it should be noted that stock investing should be done with knowledge. Stock investing requires financial, technical, and economic assessment skills. Thus, if you lack the skills – it is advice that you talk to trusted consultants with good track record of gaining in stock market. Yet, it should be further noted that many experts have failed in stock market in the past – thus it boils down the bottom line that a person should do his own research and validate it with expert opinion.

Investing in stocks today is different from investing in the stocks in the past. What made the big difference is how fast the information travels from one person to other. In the past, you would probably wait for the release of news papers before you pick-up the phone and react on the stock market. Today, it would just take minutes for a person to react on news and information because of new technologies available online – such as online stock market, social media, and news. With just one click, stock market movement could change right away.

The existence of short term investor had made the stock market more fluctuating and subject to high risk. With the current reality – the new breed of investor would deal with rising prices of overvalued stocks and would ask; why despite low financial performance, the market price of the stock is increasing. The new investor would be tempted to invest on overvalued stocks because of the upward trend and return it is showing - instead of thinking that the price is overvalued and no one would want to buy that price tomorrow.

Ending this article, it is noteworthy to identify the things to be done when caught up in the middle of significant falling stock prices – (1) never borrow money just to buy stocks in order to lessen your lost, (2) never add another stock in your portfolio, and (3) lessen your stock portfolio by 50% and move it to safer investment such as bonds or savings account. Yet, everyone doesn’t want to be caught in the falling price scenario – so it’s better to study the stock market in advance rather than speculate.

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