The big risk of investing in the stock market
You might have asked yourself in the past how risky is investing in stocks? This article is for you, we will go into the risks involved, what mostly causes them and how to mitigate those risks.
Almost every good investment has some level of risk involved in them, with the stock market the major risk involved in this is the loss of the capital invested if the share price of the said company goes down from what it was when you bought it. This can be caused by a lot of different factors, some of them include:
The economy going bad
This one is really obvious as at the time of this writing the whole world is still in a pandemic that started in 2020 and has closed down a lot of businesses and generally affected every country’s economy and stock markets across the world. A lot of unforeseen events like this can directly affect the economy and thus the stock value of companies you have invested in.
During a bad economy, analysts advice that is the best time to buy even more shares of companies you believe will weather the storm and come out on top.
The market value declining
Another thing that affects share price is the change of the value of that company in the market. This can happen when a big competitor enters the market and people dump stocks of company A to buy stocks of company B. It can also be innovation and changes in technology when a product or service loses relevance because there is a better way or product solving the same problem. This can always be spotted by investors who research the companies and know the trends in the industry before investing.
InvestSika provides you with market information and news relating to each company and industry.
The news and headlines
This one you can probably relate to, with the emergence and relevance of retail investing the chances of this happening are high. News and headlines now have the power to persuade investors in a company to either invest more or sell their ownership stake in a company and that can directly affect the stock price of a company either positively or negatively.
Despite all of this, investing in stocks is still the fastest and most sustainable way to grow wealth today.
In fact, the top 1% of the richest households in the US combined own more than 50% of all the stocks listed in the US stock market.
How to mitigate the risk
There are a few ways to ensure that you mitigate these risks to a possible minimum. The first thing is to have a diversified portfolio across various industries, this way some of these factors would not be able to affect all of them at once, hedging your bets well. The next thing to consider is to have a long-term investment strategy, most stocks do well over a long period of time and so controlling your emotions to stay with a company you believe in can pass off really well.
If you follow this blog, you will see more resources and guides for you as you start or continue your investment journey to financial freedom with InvestSika.
Wrapping up
InvestSika educates and guides you through your investments research journey and lets you buy shares of companies that are publicly listed on local and global stock markets like NYSE and NASDAQ easily using your mobile money in just three clicks. Join SikaTribe to learn more about financial freedom through investments.
