Investing Advice

Risk

Probably the first thing you must understand, is that with any investment, there is always some risk. Even your savings account, insured by the United States Government, has the very real risk of inflation rising faster than the interest the bank pays you.

We can break risk into four general categories:

  • Low Risk - You just want to stay ahead of inflation and earn more than a savings account. (bank CDs, T-Bills)
  • Moderate - In an attempt to earn more, willing to accept the possibility to lose 10% or more in one year. (index mutual funds, blue-chip stocks, bonds)
  • High - Goal is to earn above-average return on investments, by using a logical investment strategy with reasonable objectives (stock trading, options, using margin)
  • Very High - In an attempt to make as much as possible in the least amount of time, willing to take huge risks. Most speculators who see a get-rich-quick solution will end up a big loser.

And there are other kinds of risk:

  • Inflation Risk - Inflation may go up faster than the value of your investments leaving you with less money than you started with.
  • Interest Rate Risk - If interest rates rise, business growth slows and the value of bonds you may hold will fall.
  • Market Risk - The stock market itself may fall on hard times. Three out of four stocks fall during a bear market
  • Liquidity Risk - Holding stock with little demand (thinly traded) exposes you to the risk of a quick loss with relatively few people buying.
  • Psychological Risk - When emotions take over, good judgment and investing rules fly out the window.

And of course there is always the question about the safety of any investment compared to say, keeping your extra money in gold. Well, you've already seen that gold is the WORST long-term investment. And believe me, if the world's economy collapses and the biggest companies in America go out of business and there's thermo-nuclear war, your stock market investments will be the very least of your worries.
 

Who has the single letter stock symbols?
 
A Agilent Technology    N  Inco, Ltd
B Barnes Group   O  Realty Income
C Citigroup   P  Phillips Petroleum
D Dominion Resources   Q  Quest Communications
E ENI (an Ecuador corp.)   R  Ryder System
F Ford Motor    S  Sears Roebuck
G Gillette   T  AT&T
H Harcourt General   U  US Airways
I not taken   V  Vivendi Universal
J J Net Enterprise   W  West Vaco
K Kellogg   X  USX U.S. Steel 
L Liberty Financial   Y  Alleghany
M reserved for Microsoft   Z  Venator

Other Stock Market Basics Topics:

  1. Stock Market Basics
  2. Why invest in the stock market?
  3. Why Sell Stock?
  4. How are shares bought and sold on the NASDAQ?
  5. How stocks are traded on the New York Stock Exchange
  6. What are ECNs?
  7. Supply and Demand
  8. American Stock Exchanges
  9. International Stock Exchange
  10. What fuels demand for a stock?
  11. More to Know About Stock Trading
  12. Limit Orders
  13. Market Capitalization
  14. Preferred Stock
  15. How to Buy Stock?
  16. How much money do you need to open a brokerage account?
  17. Money Market Funds
  18. Margin Loans and Investment
  19. Corporation Executive Pay
  20. How much money do you need to open a brokerage account?

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After reading the above article, what is still your biggest question?



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