All investors are faced by decision making task before they make any investment. They make use of technical analysis, gut feel and fundamental analysis while performing an investment analysis before they make their decision. These decisions are greatly influenced by the extant portfolio theory. This theory tries to minimize the risk and maximize on the returns by careful selection of assets. This theory has been has been in use in the financial industry and has yielded good results.
However, it has been criticized in the recent years by behavioral economics due to its assumptions (Shriller 2005).
This theory advocates for diversification while investing. It aims at collecting investment assets whose value keeps fluctuating often. Therefore, the theory can only be applicable theoretically but not practically. This is because the theory assumes the investors are always rational and the markets are constantly efficient. It is in this respect that individual investors make their investment decisions practically without considering the theoretical aspect of it.
They consider the prospect of markets which are emerging and driven by a growth potential which must be very high to draw their attention. There are various factors that affect investment decisions and these should be taken into consideration before investing to minimize risk and to maximize the returns. Particularly while investing in a stock market investors ought to consider various aspects for instance, returns rate, inflation level, liquidity and return frequency (Mandelbrot et al 2006). Investment just like any other type of profitable business involves risks taking.
Some risks can be controlled and managed while others are beyond control.
Stock markets are considered to be among the most risky businesses. There are various risks associated to the stock market. To begin with, economic risks whereby the economy fluctuates for instance, the US stock market in 2000 was very good but in 2001 following the September 11 terrorist attack the stock market declined drastically. This is a risk that is beyond control and therefore the investors should be ready for it in this kind of investment.
Another risk that stock market investors encounter is that of inflation. This risk mainly affects investors by eroding their income stream’s value especially those on fixed term incomes. Market value risk is also associated with the stock market. Fortunately, investors have various ways of managing their saving/ funds. Firstly, they get to identify the risks associated with the stock market and how to control or avoid them. They invest in a market’s trend thus preventing the likelihood of their stock falling when the market trend is rising.
Another strategy they employ is that of diversifying their portfolio across various companies, asset classes and sectors. This helps them to reduce the impact of any one company’s loss. They also base their stock position on their risk tolerance levels. This lowers their loss potential and increases their returns. In conclusion, risk management in stock market calls for the investor’s effort. The most successful stock investors employ all strategies of stock market risk (Shiller, 2005).
Remember! This is just a sample.
You can get a custom paper by one of our expert writers.
Get your custom essay
Helping students since 2015
Essay Writing Service Features
Our Experience
No matter how complex your assignment is, we can find the right professional for your specific task. Contact Essay is an essay writing company that hires only the smartest minds to help you with your projects. Our expertise allows us to provide students with high-quality academic writing, editing & proofreading services.
Free Features
Free revision policy
$10Free bibliography & reference
$8Free title page
$8Free formatting
$8How Our Essay Writing Service Works
First, you will need to complete an order form. It's not difficult but, in case there is anything you find not to be clear, you may always call us so that we can guide you through it. On the order form, you will need to include some basic information concerning your order: subject, topic, number of pages, etc. We also encourage our clients to upload any relevant information or sources that will help.
Complete the order form
Once we have all the information and instructions that we need, we select the most suitable writer for your assignment. While everything seems to be clear, the writer, who has complete knowledge of the subject, may need clarification from you. It is at that point that you would receive a call or email from us.
Writer’s assignment
As soon as the writer has finished, it will be delivered both to the website and to your email address so that you will not miss it. If your deadline is close at hand, we will place a call to you to make sure that you receive the paper on time.
Completing the order and download