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Tuesday, October 2, 2012
Managing Two Types of Risks in the Stock Market
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Posted by Saral Gyan at 11:15:00 AMFriday, September 10, 2010
Stock Analysis, Research & Recommendations
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Posted by Saral Gyan at 10:00:00 AMFriday, August 27, 2010
Money Management Odds?
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Posted by Saral Gyan at 11:00:00 PMThursday, August 26, 2010
How to Manage Investing Risks?
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Posted by Saral Gyan at 6:00:00 PMUnderstanding Stock Market Risk
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Posted by Saral Gyan at 10:00:00 AMWednesday, August 25, 2010
Investing Risks Versus Rewards
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Posted by Saral Gyan at 9:45:00 PMThursday, August 5, 2010
Different Types of Investing Risks
2. Interest-Rate Risk:
In addition, a hedge costs money. Currency risk is generally not too much of a problem for long-term investors in well-diversified international funds.
4. Asset-Class Risk:
Stocks, bonds, and cash are the three major asset classes. If you allocate a disproportionate amount to any of the three main categories, or totally ignore one or two of them, you are subject to asset-class risk.
It's prudent to diversify across all three major asset classes even though you want to give primary emphasis to, say, stocks.
5. Management Risk:
The majority of actively managed funds underperform the broad market benchmarks. Even though a fund has beaten the market in the past, there are no guarantees it will continue to do so.
Individuals who stick with poorly run funds risk substantial under performance, which can compound over time. Investors in index mutual funds avoid management risk.
6. Sector Risk:
Industry or sector risk faces those who invest in narrowly focused sector portfolios, such as those focusing on health care or even utility stocks.
It also affects individuals holding more diversified funds that make big sector bets.
7. Country Risk:
This danger, which includes economic and political instability, is associated with single-country investments, especially those targeting developing markets.
8. Credit Risk:
The risk of default can be a concern for high-yield bond fund investors. Junk bonds can experience staggering losses when setbacks occur in this sector.
9. Tax-Rate Risk:
Investors have to be cautious in changes in tax laws that could make their holdings less valuable.
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Posted by Saral Gyan at 10:30:00 PMFriday, July 23, 2010
Investing on Stock Market Tips
Everyone has an opinion and chances are they do not have all the facts. In our experience, trading on tips from these "reliable" sources have always given the same results: Loss!
There is also "Your Brother-In-Law" theory, not highly recommended by anyone but followed all too often by many investors.
Your brother-in-law, or "some guy at work," tells you about a stock that is "really going to make you a lot of money." You know nothing about the stock but you rush out and buy a hundred shares nevertheless.
We think the right word for this group is "losers."
Would you buy a stock because an "expert" on TV or a paper says it is a great investment?
Chances are, they or their company own too much of this stock and need to get rid of it. It is called "Pump and Dump."
Pump up how great the stock is, then dump it when unwitting investors buy it because they think it is a great investment and it is really not.
We are not saying that every "great" stock that is mentioned on TV or in the papers is actually a dud; sometimes they really are high flyers, but we would not recommend to put your hard earned money on them just because some "brokerage firm" recommended them.
Would you invest in a stock because of a friend's tip?
It depends!
But before you decide, check out what he "really" knows about it, and do a thorough research of your own.
Would you place your trust and invest your hard earned money on rumors and street talk?
No!
While we do actually say "buy the rumor" and "sell the fact," on the other hand, how many times didn't the rumor just remained a worthless rumor?
Always try to get unbiased opinion and research work on individual stock. Ask yourself about the motive behind the "tip." This might save you from a lot of trouble. Besides, you don't need the "tip!" if you are aware of the fundamentals and believe in growth of the company.
All it takes to "beat the market" is commonsense thinking, plain good old time dealing and Patience.
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Posted by Saral Gyan at 11:40:00 PMWednesday, June 16, 2010
Major Type of Risks for Stock Investors
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.
A combination of factors saw the market indexes lose significant percentages. It took years to return to same levels and later moved northward only to have the bottom fall out again in 2008-09.
For young investors, the best strategy is often to just hunker down and ride out these downturns. If you can increase your position in good solid companies, these troughs are often good times to do so.
Foreign stocks can be a bright spot when the domestic market is in the dumps if you do your homework. Thanks to globalization, some Indian companies earn a majority of their profits overseas.
However, in collapses like the 2008-09 disaster, there may be no truly safe places to turn.
Older investors are in a tighter bind. If you are in or near retirement, a major downturn in stocks can be devastating if you haven’t shifted significant assets to bonds or fixed income securities.
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. With the massive government borrowing to fund the stimulus packages, it is only a matter of time before inflation returns.
Investors historically have retreated to “hard assets” such as real estate and precious metals, especially gold, in times of inflation.
Inflation hurts investors on fixed incomes the most, since it erodes the value of their income stream. Stocks are the best protection against inflation since companies have the ability to adjust prices to the rate of inflation.
A global recession may mean stocks will struggle for a protracted amount of time before the economy is strong enough to bear higher prices.
It is not a perfect solution, but that is why even retired investors should maintain some of their assets in stocks.
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.
It also happens when the market collapses - good stocks as well as bad stocks suffer as investors stampede out of the market.
Some investors find this a good thing and view it as an opportunity to load up on great stocks at a time when the market isn’t bidding down the price.
On the other hand, it doesn’t advance your cause to watch your investment flat-line month after month while other parts of the market are going up.
The lesson is don’t get caught with all you investments in one sector of the economy. By spreading your investments across several sectors, you have a better chance of participating in growth of some of your stocks at any one time.
Conservative Investors
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 after crossing age of 58 or 60. Keeping it all in savings instruments may not get the job done.
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Posted by Saral Gyan at 6:00:00 PM