Thursday, April 10, 2008

The Risk of Owning Securities

Anyone that has been through a stock market downturn is familiar with the risks of owning stocks, mutual funds, unit investment trusts, Real Estate Investment Trusts, etc.

When values are rising, we pat ourselves or our advisors on the back and congratulate ourselves for making a wise pick. We may even buy more.

The true test of an investor comes when the market heads downwards. Then we second guess ourselves and/or our advisor and wonder if we made a big mistake.

Sometimes, some event out of our control happens and that company we thought was as solid as a rock crumbles out of the blue (Think Bear Stearns, Enron, WorldCom, Tyco, etc.)

Maybe we panic and sell at a loss. Then we curse ourselves for not acting sooner. Hindsight is indeed 20/20.

Any seasoned investor knows that the stock markets go through cycles just like real estate and bonds. One should be in it for the long haul or be prepared to ride a roller coaster.

You might think bonds can never lose value. This is not true.

It depends on the type of bond you own. Some need to be kept through the entire length of the maturity period in order to get what was promised.

Others trade on the open market and can trade at a premium or a discount from face value. Some are backed by more risky collateral and can lose their entire value.

Saving accounts, checking accounts, CDs are safer from loss, but here the lower interest rates also pose the risk of not keeping up with inflation and being worth less in the future than they are today.

Risk is not all bad. Huge profits can be made to those who invest wisely and consistently. Buy stocks when the market is down. They are on sale (assuming the company is still viable of course).

Most of all, remain diversified enough that when the stock market is down, real estate is up, or bonds are trading strong.

Paula Straub
Fill out a Qualification Questionnaire and see if you qualify to save capital gains tax. Go to

Find the “Definitive Beginner’s Guide to Potentially Saving Hundreds of Thousands of Dollars in Capital Gains Tax” at