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Topics: Investment, Finance, Risk Pages: 3 (477 words) Published: September 5, 2013
The Essence of Understanding the Risks of Investing in Stocks

(A term paper in ENG4B)

by

ALCANTARA, Patricia Anne U.
CRUZ, Marisse Clarichelle Yra U.

1-AAC

to

MS. CARISSA CABAYSA
Professor

Faculty, CAS

San Beda College, Mendiola

CHAPTER 1

Background of the Study

Investing in common stocks can be compared to gambling. Commit the capital in a stock that becomes insolvent will lose the investment or invest in a stock price, which increases by a hundred percent in a one-year period. Over long periods of time, investments in a diversified portfolio of common stocks have earned positive returns, whereas long-term venture results in negative returns. This study aims to provide an understanding what the risks of investing in common stocks are and knowing the ways to reduce it helps in managing investments to earn positive returns. In essence, the objectives, personal characteristics, and time frame outline the level of risk an investor can absorb, which then determines the choice of investments to make.

Statement of the Problem

Prevention of risks is not possible without having knowledge of possible dangers in investment. Understanding the types of investment risk and what to do about it is the best way to address the issue.

Risk is defined as the variability of returns from an investment. It is the uncertainty related to the outcome of an investment, and all investments are subject to risk of one type or another. The greater variability in the price, the greater is the level of risk. Understanding the risks associated with different securities is critical to building strong portfolio. Risk is probably what deters many investors from investing in stocks and prompts them to keep the money in so-called safe bank accounts, CDs, and bonds. Returns from these passive savings vehicles often have lagged the rate of inflation. Although investors will not lose the capital, there will be risk losses in earning owing to inflation and...
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