stock market risks

Understanding Stock Market Risks As A New Investor

Whether you are about to make your first stock purchase or have already started but want to learn more, new investors should take the time to understand stock market risks before making mistakes that could cost you money.

While many people are intimidated by the stock market, this intimidation is largely due to a lack of knowledge. If you want to start investing, but are intimidated by the complexity, then read this article for greater clarity. The information below can help you learn and become more successful with your stock investments.

Do not blindly follow the recommendations of your investment broker without doing some due diligence of your own. Ensure that the investment is registered with the SEC and find some background information on the way that the investment has performed in the past. There have been instances of fraud whereby the information presented by the broker was fabricated. And it is far better for you as an investor to at least have some understanding of the market in order to establish your investment goals. Without goals, a broker will not know what your risk tolerance might be when investing.

Do your research. Before buying any stocks, thoroughly research each company you want to invest in. Study the financial history and how the stocks have performed over the last ten years. Earnings and sales should have increased by 10% over the prior year, and the company’s debt should be less. If you have difficulty understanding the information, talk to a financial advisor or broker with a good track record in stock investing.

Keep in mind that there is a variety of stocks available. Compared to bonds, commodities, real estate and certificates of deposit, stocks might seem like a singular venture, but within the stock world there are many options. Common divisions within the stock market include specific sectors, growth patterns, sizes of companies and mutual funds. Stock investors routinely discuss things like small and large caps and growth versus value stocks. It is good to learn the terminology.

Investing in the stock market does not require a degree in business or finance, outstanding intelligence or even familiarity with investments. Being patient and sticking to a plan, making sure to remain flexible and conducting research, will serve you well when buying stocks in the stock market. Anyone can do research and gain knowledge, and although that is important, knowing how to make an investment plan and understand long term goals will better lead to success.

You will also want to know all of the risks involved in the stock market. If you are used to investing in mutual funds, understand that individual stock investing is a greater risk. If you aren’t the type of person who is prepared to take a risk, stick with companies that have a good financial standing and that have shown excellent stock performance over a long period in the past.

When the stock market takes a dip, do not distress. Instead, look at the fall as an opportunity to purchase stocks at discounted prices. Many smart investors have made fortunes this way, because the market will inevitably rise again. Being able to see past the doom and gloom can be very profitable.

If you have common stocks, be sure to use your voting rights. For companies you have invested in, you should review each company’s charter. You could have voting rights with respect to making changes in the company. You may vote in person at the annual shareholders’ meeting or by proxy, either online or by mail. Either way, it is best to learn all you can about companies you own stock in.

In our article Reducing Risk with Your Stock Market Investments we covered diversification and different types of brokers – be sure to read that article as well to learn more about how to mitigate stock market risks.

The knowledge you have just acquired can only be used to your benefit when you apply them so you have a better understanding of stock market risks. You will need to take a chance and try your best to invest your money wisely. The truth is, you’re going to learn the most about how to be successful through experience, so the sooner you start, the sooner you should see success.

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