Risk Involvement in a Stock: this is a very
important factor believing in Risk when you want to invest in the stock market.
There is no guarantee what percentage you can get capital gain, where and when
the stock price stops in up-end or low-end and how long it takes to get the profits.
It is true, no company or institute can guarantee. However, you can measure the
risk various ways. That's why, it is essential to do some "Home Work"
on a company before you invest. The "Home work" should be calculating
earning per share, total debt, relative price strength, profit margins,
volumes, industry leader and so on. You can also reducing the risk by
diversifying the portfolios ( selecting stocks from different industries) and
measuring the correlation between a stock and market index. A less risk taker
has options to invest in Bond ( fixed returns) or a company who provides
dividends at the end of year. However, investors need to measure "expected
rate of returns" first, and it should be high enough to compensate the
investors for the perceived risk of the investment. Risk is contrary to the
positive profit, but there is also bright side. Taking-on greater risk demands
a greater return on the investment. This is the reason why stocks have
historically outperformed other investments such as bonds or savings accounts.
