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What are the Risks of Investing?

When you think of investing, you probably think about people that make a lot of money. We often hear about how the stock market can outperform savings account many time or how putting money into a home can give a really good return. However, it is a sensible idea to think about what the risks are before you go into it. These are perhaps something that we do not hear much about, but we need to think about them and make sure that we are aware of them before we make any investments.

You Could Lose Money

It is worth knowing that you could easily lose money when you invest. When you take out an investment you are buying an item and hoping that it will increase in value. Whether this is a house, a painting or a share of a company, there is always a risk that the value will go down. For most investments the value will fluctuate a fair bit in the short term but in the long term it will tend to go up. However, this will not be the case with everything and it is not always easy to tell what will go up and what will go down in value. There are often surprises and so you will have to be prepared to take a risk and hope that you are doing the right thing. This means that any money that you invest, you need to be prepared to lose. You need to use money that you know that if you lose it, you will still be able to manage in the future.

You May Have to Pay Costs

With many investments there will be costs involved which you hold them. With shares, for example you might have to pay an account manager or a company to hold your shares for you. If you buy a house, then you will have to insure it, pay tax and keep it maintained. If you buy a painting you may have to pay to have it stored, restores and cleaned or if you keep it at home you may need a burglar alarm and you will need insurance. It is therefore wise to make sure that you are aware of these costs so that you can allow for them when you are considering whether an investment will be the right idea for you.

You May Not be Able to Get Your Money Out

It could be the case that you buy an item as an investment and then you will not be able to sell it. This can happen with shares where sometimes a hold is put on shares to stop people selling them to try to keep the value high. With a house you may find that it is a time when houses are not selling or maybe the house is in an area where houses are not selling and so you find you just cannot sell. The same could happen with art as it might just be that the artist becomes unpopular for some reason or that style just goes out of fashion.

This is just a few of the risks that you are taking on when you make an investment. While there are advantages, or else so many would not be investing, you need to be aware of the risks as well. You need to decide whether you are prepared to take those risks. Try to imagine how you would feel if you could not get your money back or if the investment was costing you a lot of money and think about whether you feel that it would still be worth going ahead with them.