Understanding the Risk When Investing in the Stock Market


RISK title
There’s no such thing as a risk-free investment. This is what we have to realize in choosing the best investment for us. But does it mean that because of the risks, we will not invest at all? Like other things in life that has risks, it’s in understanding the kind of risks involved in investing will help manage our fear of investing. (Read: Fear Factor)

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In this blog, we will take a look at one of the risks of losing money when investing in the stock market when investors don’t stick with their investment strategy.

INVESTOR KA BA O TRADER

Stock market prices go up and down for different reasons. It may be because of our economy or political situation, company performance, world events, and many others.

Stock market investors who use the Peso Cost Averaging Strategy (Read: Peso Cost Averaging explained) should continue buying stocks regardless of the market situation. However, in a down market, a lot of investors do not stick with their investment plan and sell their stocks along with traders because they are afraid to lose money. If investors do not stick with their investment strategy, they are putting their money at risk.

BUY HIGH, SELL LOW

For example, let’s say you bought stocks of BDO at P110 per share last February 2013. In August of the same year, the stock market started to go down and BDO’s price was also down at P69 per share. If you sold it back then at P69, you just took a loss of P41! The question is, why will you sell if you are a long-term investor? Did BDO suddenly lay-off their employees? Did they close hundreds of their branches? If not, bakit ka nagbenta?

YOU’RE STILL AN OWNER

Investors have to know that in a down market, prices may change but the number of stocks they own remains the same. It’s actually an opportunity to buy a great stock at a cheaper price, right?

In the long run, if a business does well, the stock price eventually follows. The same thing is also true when the business doesn’t do so well. Remember that as an investor, you are buying a portion of a business. Ka-sosyo ka!

Since you are a part-owner, you should know your company’s performance every now and then. Now, if your company consistently underperforms, that is the time you should considering selling your stocks even at a loss to prevent further losses.

As you can see, hindi naman talaga mawawala ang mga risks, ang importante naiintindihan natin ang mga ito. This will help you from making decisions out of fear that will limit you and the way you live your life.

Aya Laraya, Investment Advocate

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