Investing in the stock market is one of the most lucrative financial decisions that you can make. But, not everyone is interested in stashing their money away in low-yield (but safe) funds.
Risky stocks are an option, but not everyone knows if they should take the plunge.
Not sure where to start? Don’t worry, we’ve got you covered.
Let’s take a look at everything you need to know.
Table of Contents
What Is ‘Risk’ in Stock Investing?
When people think of the stock market and imagine themselves losing money, they tend to only think in the short-term.
They’re terrified of waking up one day and seeing the value of their stocks decrease. They may even panic and pull all of their money out in fear of there being some sort of crash.
But, a stock’s price going up and down is entirely normal. There’s even a term for it— volatility.
This refers to the fluctuation of a stock’s value. Some stocks are more volatile than others, and some are relatively stagnant.
Stagnant stock,s as you may assume, stay mostly the same in value. While your money is safe in these investments, you generally won’t have too high of a net gain.
Can’t You Make a Lot of Money From Risky Stocks?
In a perfect scenario, you would continually buy a highly-volatile stock at a low price and then sell it at a high price. It’s impossible, though, to predict a stock’s performance 100% accurately, and it takes a ton of research to have your predictions be even reasonably accurate.
Even then, certain events can cause the rise or fall of a stock (military conflicts, company scandals, etc.) and there’s absolutely no way for you to do anything about it.
Additionally, people often think of watching a market all day and selling/buying when the time is right. This process is known as day trading.
The interesting thing about day trading, though, is that you need to have at least $25,000 in equity on any day that you choose to trade stocks more than a handful of times, or else the practice becomes illegal.
When Are Risky Stocks Safe?
Due to circumstances out of anyone’s control, no stock is completely safe. But, stocks that are viewed as ‘risky’ most likely aren’t as bad as people think.
For example, a stock could have drastic volatility from week to week. But, if it’s consistently increased in value over the last three years, then this behavior becomes irrelevant.
These stocks are known as ‘safe harbors,’ and you can learn more about Safe Harbors here.
As long as you let your money stay in these types of stocks rather than sell out of fear, then you’ll find that they aren’t so risky at all.
Understanding Risky Stocks Can Seem Difficult
But it doesn’t have to be.
With the above information about risky stocks in mind, you’ll be well on your way to making the decision that’s best for you.
Want to learn more about financial management? Make sure to check out the ‘Money’ section of our blog for useful tips.