How do I analyze the investment risk?
Although the risk levels differ, there is a risk whenever the investment is carried out. The investment risk can be analyzed using a number of parameters, and although some analysis is best left on Wall Street, the basics of investment risk analysis are rooted in common sense and can be understood by anyone who wants to invest money. There are some categories that describe the types of investment risk, and these categories throw light in ways to protect themselves from a financial misfortune.
The first type of investment risk is sometimes called a valuation risk. It simply means that at certain prices the investment can be good, but not at other prices. The risk is that a person can buy a good investment at a bad price. This form of risk applies to all types of assets, including real estate, shares and bonds.
In the case of real estate, the family could find a wonderful home to buy it- the right size, good position, etc.However, if the price is far beyond the extent that the family can afford, this "good" investment would not be a good financial decision for the family. In the case of shares, the company may have excellent profit margins, good growth and strong brand, but if traded at too high the price, due to the company's intake it may not be a good investment. The question to be asked to analyze this type of risk is whether there is something good investment, but whether it is a good investment at the current price.
An example of a good company with superior shares leads to the most famous category of investment risk called business risk. The business risk is easy to understand and is somewhat intuitive, even for someone who does not know business and finance. In principle, business risk is present if there is potential that investment will lose value due to competition, financial problems in society or poorly managed resources. The most common is to see this type of risk present in the shares of publicly traded spolThe ectance.
It is easy to understand why the intelligence story of a company that shows a major operating loss or some kind of corruption in the proceedings will send the price of the company's share. If the investment is a small property in the company, in the way the share of shares is, its value generally increases or decreases with the performance of the company and the perceived value. Some industries are susceptible to a higher level of business risk, and this should be taken into account in investing. The best defense against business risk is to invest in a company that is able to stay above water in difficult times by increasing prices, as the company's product is known for quality or reliability.
All investments have at least a certain degree of risk. Even investments that are said to be without risk, such as investments supported by the government, may lose value for inflation, and this is suitably known as an inflation risk. The presence of risk is universal and should never beconsidered a reason for not to invest at all. This procedure can be the one who has the greatest risk of all.