By buying shares in a company, investor becomes one of the owners of this company, with the entailed benefits and risks. Shares continue to be the most widespread asset class among investors.
In case the company grows and outperforms the market, its shares generate superior returns to investors. However, in case of unfortunate developments, share investors accept the highest risks.
Reasons to invest
Investing into shares investors usually opt either for a capital appreciation potential, investing in high-growth companies, or a dividend flow, selecting more stable cash flow generating companies.
Risks to consider
Market risk: The stock market is inherently volatile and subject to fluctuations based on economic, political and global events. This can result in short-term fluctuations in the value of individual stocks and the overall market.
Company-specific risk: The performance and financial stability of a specific company can impact the value of its stock. Factors such as declining revenue, poor management decisions, and competition can all contribute to a decrease in a company’s stock price.
Interest rate risk: Interest rate changes can impact the value of stocks, as higher interest rates can reduce consumer and business spending, leading to decreased demand for goods and services and potentially lower stock prices.
Inflation risk: Inflation can erode the purchasing power of investments over time, and may impact the value of stocks if it leads to rising costs for companies and decreased consumer spending.
Credit risk: If a company experiences financial difficulty, it may default on its debt obligations, potentially leading to a decrease in its stock price.
Liquidity risk: It may be difficult to sell stocks quickly in times of market turmoil or in the event of a personal emergency. This can limit an investor’s ability to access their invested funds in a timely manner.
It is important to consider these risks when making investment decisions and to diversify your portfolio to reduce overall risk exposure.
Public vs private
Investments into shares can be executed both publicly and privately. However, it must be noted that in case of non-listed investments its liquidity is considerably lower.