Stock investments are widely known and easy to undertake. Nowadays, many investors just follow the crowd and invest in stocks without taking time to study the benefits and otherwise of owing status. Others are also tempted by the huge reputation and presence of the companies offering the stocks. Thus many are swayed to buying stocks of companies because of the prestige of being a member of the corporation. Few have sought to find out how secure their stock investments were. This article outlines the risks of holding stocks and how to secure your investments in stocks if you are have one.
Stock investments are very volatile. This is due to the economic situations in countries and linked to demand and supply. The value of a stock among others is determined by the expectations of investors about the potential of the company. By so doing, some stocks are over priced whilst others are highly under priced. In an efficient market, the forces of demand and supply will push these entire prices to their equilibrium. By so doing, some investors will gain whilst others will lose, sometimes significantly. This has accounted for the up and down movement of stock prices over the years.
Another reason why stock investment is risky is the uncertainty of dividend payments. Dividends are paid to shareholders at the end of the accounting period. Some of these dividend payments are linked to the company’s dividend policy. However, board of directors through annual general meetings can convince the investors why they cannot pay dividends. They may come out with stories such as finding a very good opportunity to invest which may result in higher value for the company. Since many of the big investors will want dividend gains as a result of the appreciation in the share value, they sometimes vote to agree denying the smaller stock holders nothing for the year. More often than not, most of these promised future returns never materialize, all to the disadvantages of stock investors.
In addition, in spite of all the analysis carried out by stock brokers and good intentions for their clients, most of these target companies for investments because of unforeseen circumstances such as mismanagement, sudden change in management, earthquakes, wars, tsunamis, etc, are never able to pay dividends or appreciate in value. Investor in this kind situation will never enjoy their stocks investments.
However, there are some practical ways by which you can secure your stock investments. You can use schedule investment plan where you do not stretch your funds for investment but transfer funds from your account automatically to your broker, directing him as to what to buy and at what time, sharing tips and consultation with your broker. This will also help you not to invest all you have but at your pace depending on your financial strength. You can start with just one stock and add up when you begin to make profit. You can also set up an Individual Retirement Account popularly known as IRA. By this way, you contribute a portion of your investment profits to this account which gives you some tax advantages. In the event of significant losses, you can fall on this account. Also, stock investors can also secure their investments with S&P 500 Index fund or NASDAQ-100 Index funds. By investing in these funds with any amount of money available, you have invested in a pool of the best companies in the world. This means that your returns are linked to how these index funds perform. Largely, your returns will be less volatile than investing in individual companies on the same stock exchange.
Stocks are good commodities to invest in especially when you do have a lot of funds for investment. However, irrespective of the amount of money at your disposal, you can secure your stock investment with the strategies above knowing very well the risk that stock investments poses.