Stock Risks Assessment
One of the most important things to consider when investing in stocks is how risky they are. All investors have their risk tolerance but they need to be able to tie their risk levels to the risk profile of the stocks they want to invest in. If properly done, investors would know how much risk to take on, whether to invest in a particular stock type and how long they would want to invest in a stock.
Some investors may prefer highly volatile stocks because they are also highly profitable. Others prefer more stable, defensive stocks because they give more secure, regular dividends.
You can invest in companies listed in the US stock market easily through the InvestSika application in a few clicks.
Factors to Consider
When considering stock risks assessment, it is important to consider personal risk tolerance as well as the stock risk for the investors. Determine your investment style, risk tolerance, and time horizon. Defining who you are as an investor is very important as it helps to determine how you can invest and help you to have a solid investment plan.
In investment styles, there is a trading or short-term investment style versus the investing or long-term investment style. They both determine how long you would want to hold stock rather than just buying to sell. Shorter time investments are held below a year and seek to profit off stock volatility and shorter-term gains rather than longer-term stability-based profits.
Longer-term investment styles are characterized by holding a stock above a year and hoping to gain a more stable return based on sound financial policies rather than the volatility of the stock. They have very little risk and stable increments on dividends can be achieved over time.
To adopt a short- or long-term investment style, it is important to consider the time horizon. There is less time to engage in short-term investments and the investor must study market trends to know how to manage the dips over time. A longer-term investor needs to be patient and not rush to sell his stocks when the market is experiencing a bear market trend.
With risk tolerance, it is important to know how much risk you are willing to take and how much risk you are capable of taking. A good understanding of your risk tolerance would require asking yourself important questions regarding the reason for saving, the goals of saving, and the means through which you can save.
You can invest in companies listed in the US stock market easily through the InvestSika application in a few clicks.
Identifying Risky Stocks
Stocks belonging to companies with a low market cap are risky, as the companies tend to be either growing companies or companies in developing sectors. This means that while the potential for high return is great in the future, they lack the expertise and the total market value to give you a guaranteed return on your investment.
Other factors such as Beta scores give you a better technical picture of risks and some characteristics, such as whether it is a blue-chip stock. It also gives more pointers to the risk profile of a stock.
Companies filing for bankruptcy have risky shares. This is because stockholders are given very little priority when it comes to liquidation. Many specialized ETFs like inverse ETFs and leveraged ETFs also have riskier stocks.
InvestSika provides information needed to start your risk assessment on any company right on the app, with news and recent happenings.
Conclusion
As a generalized guide, inquire whether a company has a good reputation, good leadership, and check whether it is in any legal trouble or performing well on the stock exchange.
You cannot fully understand all the factors affecting stock price and value but if you know your risk appetite and understand broadly how risky stocks look like, you would be able to know if you should invest in certain stocks and how to effectively do so for better returns.
