Know the risk factors before investing in share market

Most people think of stock market risk as the probability that they will lose money in any investment. Indeed, the risk of investing in the stock market falls in many categories. Market risk is the risk that the whole market goes down. When this happens, the majority of shares you have come too down. The same applies to investment funds. Buying shares of companies listed on the stock exchange does not eliminate the risk of stock market. Think about it. Even if you invest in the market, you still have the propensity to risk that the market will fall.
If you put all your money in shares of one company only, you leave yourself open to risks of both stock market and company-specific risk, a lot of companies can dramatically reduce company-specific risk. There is a said: “Do not put all your eggs in one basket.”

There is “incident risk” that may affect the specific company. For example, an article could appear in the newspaper that the company’s product causes cancer or crash could kill the entire management team. There’s a “risk of reduce share value. This means that profitability would be lower than inflation during the year. Even if you did everything correct investment decision, if long-term inflation, as well as your long-term profitability, in principle, you might broken even in terms of purchasing power.

Financial risks can be divided into two parts. The first part is a reduced likelihood of the fund. The second part is the potential size reduction. Typically, risk and reward go hand in hand. If you take a higher risk, you should be designed for greater rewards. You need to be careful. Sometimes you are very high risk and do not get opportunities for high rewards. If you want a high degree of safety usually expect lower profit margins. If you want a very high rate of return, and accept the risks associated with high returns every once in awhile, you should expect to lose big.

We have all heard that stocks risky in the short term, but not in the long run. How is it possible that short-term risk of stock market largely disappears for the long term? Where is the risk? Fluctuations in the rate of profit, long-term risk reduction is known as “the average return. This means that an unusually high return on stocks today profit below expectations in the future. Bull markets tend to follow the adjustments. Bear markets usually need rehabilitation. Stock prices return to long-term mean or average, and stocks, as they say the average return. In these conditions, the stock market will decline as your investment horizon is extended, so that a longer period of possession, the return will be closer on average.

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