The majority of investment risk factors such as economics, government policies, general policies, natural disasters, and so on.
Depending on how your financial situations and the amount of risk-taking level, you can put some amount aside to put in as an investment, then we can add other risk factors to evaluate your investment risk.
In general, the best suggestion for the amount to invest is; the amount that if you lose, it won’t affect any impacts in your life.
When an investment increasing the potential for higher returns, that increases the risk.
Examples of Investments Risks are as follow:
- High-Risk Investments: Penny stocks, Precious metals, and gems, Cryptocurrencies, Commodities (These types of investments may yield significant gains but also a massive loss as well).
- Moderate-Risk Investments: Companies Stocks, Growth Stocks, Mutual Funds, Real estate, and index funds (These types of investments usually offer a stable return and capital appreciation in the long term).
- Low-Risk Investments: Cash, treasury bills, certificate of deposits, government bonds (These types of investments have the lowest risk, but they are generating the least returns as well).
All of those factors above can affect and change the level of your investment risk factors.
Here, in this article, I’m going to describe some of the significant investment risk factors, which can happen in any type of investment.
How Economy Changes, Increases The Investment Risks?
1- Good Economy and Investment Relation
When the economy is excellent in any society, the investment risk factors are less as well, and people invest more in stocks, mutual funds, real-states, and so on.
As a result, there will be more money in the banks, and the government also collects more taxes, and they can offer more goods and do more services.
Companies will have more funds to spend on their production qualities and do more researches to provide a better quality of products and services. Therefore, there will be more jobs and innovations in society.
The effect of investment in economic impact is high, and the power of capital will increase the economy of any country.
When you invest in the stock market of anything, then capital accumulation will help to produce industrial materials and the growth of industrial and technologies.
A good economy means more jobs; more jobs means more taxes; more taxes means more funds; more funds means a more robust economy and wealth with modern society.
Investment in a good economy is always growing until people keep investing in that specific stock, mutual funds, real-state, and so on, but when they don’t invest in such a thing, there will be a negative score.
2- Bad Economy and Investment Risks
When the economy is terrible, the purchasing power of the individual gets weak, and then there will be more goods that can’t get converted to cash; as a result, the prices will drop, and the profit will be less as well.
Moreover, when the company doesn’t make enough profit, then their shareholders’ profit sharing will become less as well, If you invested in those companies and bought their bonds, then your investment will be at risk of losing values.
Imagine if all the investors retrieve their money, and there are not enough funds to cover all their requests, then there will be a huge problem.
The companies will cut off expenses to balance their budget, doing that, there will be more layoffs and more unemployment expenses for the government.
No one will invest in any stock or mutual funds, which is losing values for an extended period. That is why you should always pay attention to the market growth graph of your investment options before you decide your choice of investment to lower the future risk.
The Government’s Rules Increases The Investment Risk Factors
The government’s rules have a direct effect on society’s economies and can have a direct impact on any type of investment.
For example, if the government of a country makes a rule that for the next ten years there will be no increase in any real-states, then all the real-state investor’s money will be sitting without any profits.
You must focus on the prospective price changes of the proposed item to purchase that you contemplated when you are investing.
There is no promising in any profit and gains of any type of investment, but you can just check if your risk is equal or less than the amount that you can afford to lose.
Never keep watching of your stocks daily, instead just check the yearly outcome of the reports because the fluctuation of the market can be seasonal or based on many other global effects such for example, nowadays, with corona-virus.
“With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations.
Games are won by players who focus on the playing field, not by those whose eyes are glued to the scoreboard.
If you can enjoy Saturdays and Sundays without looking at took prices, give it a try on weekdays. ” Warren Buffett
If the government changes the taxes that will affect the investors’ profit margins.
Natural Disasters Economic Impact on The Investment Risk Factors
The impact of natural disasters such as pandemics diseases, floods, fire, hurricanes, earthquakes will affect the economy with severe damage in any type of investment.
Natural disasters will destroy many resources and assets such as Real-estates, human capital, equipment, natural resources, production, and so on.
Nowadays, we are all in the coronavirus pandemic COVID-19, and the whole world is in an emergency with the most considerable economic loss.
Almost all the governors of the world are using their emergency budget to offer their citizens basic needs until the situation gets under control.
The fear and panic about such a natural disaster are that we don’t know when that pandemic will be ended and, as a result that will drop all the stock markets and causing a considerable investment loss globally.
In general when the stock market crashes, some people who are more risk-takers, are starting to buy, usually they are the most prominent investors, and by doing that, they will increase the prices a little bit, and when experts are watching the chart is going up, then they start buying again.
That’s how the stock markets are growing back again.
It can be applied to all types of investments such as real estate. However, banks are cautious to pay loans to their clients, many cash buyers are taking the advantages and buying properties at the lowest price and then they’ll wait for their investment to grow with high return.
Never Take Advice From People Who Are Not Familiar With Investment Risk Factors
Taking a piece of advice from friends and relatives who does not have any clue about investment is a high risk.
If someone gives you some advice about investing in some stocks, you should ask him/her where the information came from and also do your investigation as well.
However, people who are not familiar with investments, they’ll convince you to keep your risks at the lowest and keep your money in your savings account and collect the small amount of yearly interest only.
Their idea of investment could be a good tip, but you should do your due diligence as well.
Try to contact your financial adviser and get the opinions from a few other advisers as well.
The financial advisor will suggest the best advice based on your financial situation and your goals as well. He/she will help you to organize your economic plans to be prepared well and organized for your future financial purposes as efficiently as possible.
Do Not Put All Your Eggs in The Same Basket
Most prominent investors and entrepreneurs are usually shareholders of their competitors as well. Microsoft and Apple own each other stocks as well. This way, if one business crashes, their shares will grow and gain a profit for them.
It will be a win-win competition.
Smart people are investing in many different investment types of mixed long, moderate, and short, as well as many different options of each class as well.
For sure, your financial advisor will guide you with the best options available for you to make sure you’re investing in the right level with minimum risk, but no one is aware of the future. However, even if the market crashes, the investors should not pull their shares or investment out until the market is back to normal.
If many people are pulling their shares or stocks at the same time from the market, then the price of the stock will drop.
However, when you have invested in any type of investment, even if one of them drops value, there will be again from your other funded sources, and your risk will be limited.