Investments in stocks must be made after considering not only the returns, but also the risks involved. Although you cannot eliminate the risks completely, you can limit them to some extent. A well balanced investment can maximize your returns while reducing your risks. Here are a few major risks that you may face when you invest in stocks.
Economic risks – When the economy goes down due to reasons like natural disasters, terrorist attacks, recession etc, the value of your stocks can also go down and bring you huge losses.
Inflation – Inflation has a negative effect on all kinds of investments, including stocks. Unless you own stocks of companies in the food and consumer durables industry that tend to make profits during inflation, you need to keep inflation in consideration when investing in stocks for the long-term.
Market risk – When the market collapses, most of the stocks- good or bad are affected negatively as everybody wants to sell their stocks but nobody wants to buy.
Next Chapter: Stock Investing Tips