A lower-risk stock investment? Is this for real? This might be what’s going on your mind as soon as you read the title of this post, but we’re not kidding about this. You can reduce that risks that come with stock investing.
Here are the basic facts about stocks that you must keep in mind as you invest in the stock market:
Stock prices go up and down rapidly.
It’s a reality that stock investors must accept to have realistic expectations. There are two strategies that you can use to make the most out of that reality: momentum investing and value investing. Momentum investing involves a rising stock, hoping that more buyers will jump in. On the other hand, value investing entails buying an undervalued stock.
Stocks are the most volatile investment vehicles.
A stock you’ve invested in will steeply rise and fall in a short span of time. This makes stocks more volatile (and higher-risk investment) than other investment vehicles such as bonds and money markets.
As a stock investor, you’re an owner of a company.
Because of that, you reap the gains when the company whose shares you bought perform well. You’ll also suffer losses when the company performs poorly. Know your rights and duties as a part-owner: this will give you an idea of the possibilities in terms of growth and failure of the company.
Taxes are part of the costs of stock investing.
Every dividend you get and profit you earn from selling stocks are taxed. So consider that when computing your total return—it needs to overcome the cost of taxes as well as inflation.
Remember that every investment comes with risks. It’s inevitable—but you can surely minimize risks and avoid losing all your investments by being well-informed about the realities of stock investing.