what are stocks? why is investing in stocks so risky?

Answer 1

STOCKS:

A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company.

You have the right to vote on members of the board of directors and other important matters before the company. If the company distributes profits to shareholders, you will likely receive a proportionate share.

One of the unique features of stock ownership is the notion of limited liability. If the company loses a lawsuit and must pay a huge judgment, the worse that can happen is your stock becomes worthless. The creditors can’t come after your personal assets. That’s not necessarily true in private-held companies.

RISKS:

Investing in stocks is a risky business. Your investment can be eroded badly and you may not be able to recover your original investement. There are some risks you have some control over and others that you can only guard against.

Thoughtful investment selections that meet your goals and risk profile keep individual stock and bond risks at an acceptable level.

However, other risks are inherent to investing you have no control over. Most of these risks affect the market or the economy and require investors to adjust portfolios or ride out the storm.

Here are four major types of risks that investors face and some strategies, where appropriate for dealing with the problems caused by these market and economic shifts.

Economic Risks
One of the most obvious risks of investing is that the economy can go bad. Following the market bust in 2000 and the terrorists’ attacks in 2001, the economy settled into a sour spell.

Inflation
Inflation is the tax on everyone. It destroys value and creates recessions.

Although we believe inflation is under our control, the cure of higher interest rates may at some point be as bad as the problem.

Investors historically have retreated to “hard assets” such as real estate and precious metals, especially gold, in times of inflation.

Market Value Risk
Market value risk refers to what happens when the market turns against or ignores your investment.

This happens when the market goes off chasing the “next hot thing” and leaves many good, but unexciting companies behind.

Too Conservative
There is nothing wrong with being a conservative or careful investor. However, if you never take any risk it may be difficult to reach your financial goals.

You may have to finance 15 to 20 years of retirement with your nest egg. Keeping it all in savings instruments may not get the job done.
Conclusion
I believe if you learn about the risks of investing and do your homework on individual investments, you can make decisions that will help you meet your financial goals and still let you sleep at night.

Answer 2

Stocks are shares of ownership in a company. If you own 10% of the shares issued by the company, you own 10% of the company and are entitled to a portion of their profits.

They can be risky because, if the company is suffering financially then people may not be willing to pay much for your shares should you decide to sell them. IN fact, if people only "think" the company might have problems or even if the economy as a whole has problems, the value of your shares can drop.

If the company goes out of business your investment can drop to zero.

Hope that helps.

Answer 3

stock means a collection of shares .

investing in stock is risky because the market value of shares can fluctuate violently, that you may buy a share for 50 $ hoping its market value will increase but unfortunately its value went down to 32$ per share what if you had bought 1000 shares for a price of 50000 $ the loss is 18000$ and you sold it for 30$ per share in order to avoid further loss ,but latter you find that your
shares had an increase on its value that is 65$ so you would have made 15000$ gain ,but you lost not only that but also so 18000 so the total loss would be 33000 $ .now you got it


but one thing the market value of the share is different from its par value ,par value is the real value of the stock ,that is the price for which the company sells the shares for the public and it would be always remain the same but the market value is the demand for a particular share in the share market which would generally fluctuate with the performance of the company but there is no general rule for that its all ways uncertain and that is why its considered sooo risky . you must be lucky but also intelligent to make the right decision ,

Answer 4

sure, except you pick the money between now and the time they improve, or that business enterprise does no longer do properly. Then the inventory marketplace is amazingly risky. in case you make investments and let it bypass for years and years, in spite of the indisputable fact that it is making an investment. It relies upon what you propose by technique of fantastic returns? Are you l;searching for 10% 20%? now and again different instruments, consisting of discounted bonds can provide properly over 10% after tax with out any of the risky fairness threat. now and again a lot less volatility is a lot less puzzling to address then the united statesand downs of the marketplace.

Answer 5

When you buy a stock, you become part owner in that company. You get to vote on things like who'll serve on the board of directors.

What makes it risky is that there's no guarantee that the stock price will rise, and dividends will continue to be paid. And in the case of a bankruptcy, stockholders are last on the list to be repaid. Most often, they get squat in the end.

By contrast, bondholders are just like bankers. They're not owners but rather bankers lending money. They have a guarantee of repayment, earn a given rate of interest, and in the case of bankruptcy, get paid before stockholders.

Answer 6

Stock is risky because that is the natural way to make money. You should learn from the expert to predict when it'll go up or down. It has to move up and down all the time for you to make money, otherwise you go no where and make no money. You have to jump in to get your feet wet and be excited to gain . Don't be sad when you loose. Keep trying to make gain more than loose then you have a lot of money.
This is the best chance to make quick money but more people loose than gain because they don't study the nature of stock.
Happy trading
Mr. Vu

Answer 7

The best explaination I've found as to what STOCKS are is located here:
http://www.fool.com/school/basics/basics03.htm

The main risks are basically
1) Not researching the company your investing in properly before coughing up the money to buy some of their stocks.

2) "unforeseen circumstances" - things like resouce costs (e.g. fuel, materials, etc) going up..... pushing profits down as a result.
Or something like the "ENRON incident"..... where they got busted for dodgy accounting....... or perhaps something like having a decent boss to start off with, only for him to be replaced by someone less capable for something like getting busted for shagging his secretary or something...... or a shareholders revolt, etc.