By : Lindsey Fisher
A good number of people look to stock investment as a great way to earn money. Majority of the countries in the world have their own stock exchanges, the most common of which are New York Stock Exchange, or NYSE, and the London Stock Exchange. Investors — buyers and sellers — typically flock to these exchanges to acquire and divest stocks of major companies in their respective locations.
While stock investments sounds like a very enticing form of earning good money, it is, however, a gamble. This means that when one invest in stocks, he has to accept and be more than willing to accept the risks associated with stock investments. It is not easy to get by these risks, since these are inherent in the business of buying and selling stocks. To reduce those risks, one needs to consider some vital points before deciding to make a stock investment.
First of all, a potential investor should have a realistic expectation with regards to possible returns. When one invests in stocks, he should not expect that he would earn a return that is double his investments. He should also not expect to make a large amount of return in just a short time. Stocks investment is like playing a card game; one must make the right moves while knowing what he really has in his hand. A realistic investor knows that every move could become either a hit or a failure.
Second, a potential investor should not just invest in stocks of any company. He must also make sure that before he is placing his money on a certain stock, the shares have a good trading history of ups and downs. This only means that a potential should conduct first a research of the stocks he wants to invest in. Typically, the success of a stock investment depends on getting the right information at the right place and the right time. A potential investor needs to evaluate where a certain stock is worth investing. He may need to consider relevant financial and economic conditions before pouring his money on a certain stock. Making an objective assessment whether it would be profitable to invest in a certain stock is part of stocks investment.
Third, a potential investor should not just focus on one stock. He should consider mixing his investments by creating a portfolio of stocks of different companies, preferably from various sectors. Certain market and economic conditions as well as other factors could cause the price of a certain stock to plummet. An investor who holds some stock of a company that was adversely affected by an economic or financial slump is high likely to lose his money. However, the investor could offset such losses through other investments in profitable stocks. The less diverse is one’s investment portfolio, the higher is an investor’s risk on significant losses. A mixed portfolio offers an investor a good layer of protection against losses by limiting any financial damage to just one of a few financial instrument.
It is only wise to consider these three essential points before a potential investor decides to invest in stocks. Success is much easier to attain if one is armed with the right information on how to deal with any risk associated with stocks investment.
This article was written by Lindsey Fisher. Lindsey works as an analyst at a major stock broker based in London. When not analyzing shares and trading histories, she engages in writing an essay about business and financial issues.