Do you want to invest your money profitably in the long term? Then there is no getting around shares. In retrospect, no other form of investment has brought higher returns so far. With shares you participate in the positive economic development of a company through price increases and dividend payments.
As an investor, however, you should not only inform yourself about the opportunities, but also about possible risks. In the following article you will find out what risks a share investment is exposed to and why shares are safer than expected in the long term.
What is generally understood by investment risk?
Many investors speak of investment risk when the prices of shares or other securities fall instead of rising, i.e. when things turn out differently than expected. Risk is thus understood as the danger of price losses. The reasons why share prices rise or fall can be read about here. What are the individual types of risk?
The 6 most important basic risks that affect all securities investments
The following is a description of typical basic risks that apply not only to shares but essentially to all securities investments:
1. inflation
Inflation means that prices rise across the board, or vice versa, that money loses value every year. The inflation risk arises precisely when the (nominal) return on the investment is lower than the inflation rate.
If, for example, a call money account earns 0.5 percent interest and the inflation rate is 2 percent, the investor loses 1.5 percent of his assets every year. That is why it makes sense to look not at the nominal return but at the real return. The long-term consequences of this for investment are explained in detail here.
2. economic cycle
Every economy develops in economic cycles. In general, the phases
- Upswing,
- boom,
- downturn and
depression.
Most companies find it difficult to escape unfavourable economic phases, so that the changes also mean (negative) effects on the price developments of shares.
3.) Currency risk
A currency risk arises when securities are held in a foreign currency and the exchange rate of that currency falls. Then the securities held in this currency also lose value.
4.) Stability of individual countries
If economic or political instability leads to payments abroad being suspended, this is referred to as country risk. All investors who are invested in securities of the affected country are affected by this risk.
5.) Tax legislation
All capital gains are taxable. If tax legislation changes, this can also have a negative impact on the investment in securities with personal area.
6.) Liquidity risk
If no suitable buyer can be found for a security sale, this is referred to as a liquidity risk, since the security cannot be liquidated at this point.
