Decide whether high return investments are for you
Beginner Stock Market Investing, Stock Market Investing Advice
A lot of people lump together all stock market investments as being essentially high risk investments. While is it true that there is no guarantee on returns or dividends, and there is always the risk of making a big loss, it is also fair to categorize different types of stock market investments by their inherent risk levels. However, always remember that risk often come with reward and high risk investments could easily mean high return investments.
Generally considered as the safest bet are the big, solid companies who have been around for years and are involved in businesses which are well established. Banks, utility companies and the people who make your favorite soft drinks and fast food are the types of companies we are talking about here. Stocks in these companies are not crash- proof, and you should not expect outstanding returns, but barring exceptional market conditions you would generally expect them to maintain or improve their value or a number of years. These are usually known as blue chip stocks and are quite often put together in a sub-section of their country´s stock market; such as the FTSE 100, the Dow Jones or the Ibex 35.
At the other end of the scale we have the most high risk investments. This would cover new companies, companies involved in new technologies and those operating in emerging countries. I am sure we can all think of new companies who have flourished and given excellent returns for their investors, the internet sector providing us with some prime examples, but there are also plenty of examples of new companies which were expected to do well but which crashed and burned. Unless you have specific, insider knowledge which makes you certain that the company will succeed and give you a good return then investment in these companies has to be classed as a calculated gamble on a high risk investment. The same goes for
investments in companies who have a large exposure in developing companies. Here a change of government, a nationalization program or fluctuations in exchange rates are the kinds of things which can seriously affect the stock price.
This leaves the vast majority of stocks in other companies, those which are not classed as solid, blue chip investments but which are not regarded as intrinsically high risk investments either. The key for investing in these companies is to do some investigation into their businesses and future plans. If there is talk of expansion or take-overs then things are looking good. If the talk is of falling profits, cutbacks and tough times ahead then you need to proceed with caution. The company itself will obviously try and positive spin on any news so it is advisable to read reports from independent analysts, to get a more balanced picture.
Investing in the stock market is never going to be a rock-solid, safe as a houses option with a guaranteed return. The possibility of huge gains in a short space of time is what makes it such an attractive option for many people. The flip side of this is the risk of losing a big part, or all, of your capital if things go wrong. The key is to consider how much of a gamble you are willing to take and how much of a high risk investment you would be comfortable with.
Tags: high return investments, investments, Stock Market Investing