The risk of stocks and why you should think twice before investing in them


The secret is to be fully aware of the risks.

If you've never invested in stocks, you're very likely to lose money when you first start investing in them. Even if you do all kinds of research, nothing can prepare you for the gamble that is the stock market.


Markets rise and fall due to global events which are unpredictable and most of the time global events happening around the world are hurricanes, earthquakes, floods, etc. Fluctuations in the price of stocks means your money will be stuck without a certain outcome.

There are systematic risk - also known as market risk, this is the potential for the entire market to decline. Systematic risk cannot be diversified away. Unsystematic risk - the risk that any one stock may go down in value, independent of the stock market as a whole. This risk may be minimized through diversification. Other risks - opportunity risk and liquidity risk may also apply to stocks in a portfolio. 

Trying to predict future prices is nearly impossible. Anyone who tells you otherwise is lying. Market pundits claim that the key to stock market riches is obvious: buy low and sell high. Good advice, perhaps, if it was that simple.

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