AC2650 cw2 Essay Example | Topics and Well Written Essays - 2250 words

AC2650 cw2 - Essay Example Every investment comes with different types of risk associated with it. Investors may think that making investments according to the advice of the financial experts are free of risk. But this is not true, as it also comes with various risks. Investors need to understand that to generate wealth over a period of time it needs to accept a high amount of risks. Stock market always fluctuates and it depends on several factors like profitability and performance of the company, political and social factors, and govt. decisions. Share prices of a company always fluctuate due two types of risks – systematic and unsystematic risk. Systematic risks are the market risks and can be measured by beta. On the other side unsystematic risks are those risks which arise from the internal problem of the company like labor problem, problem in managerial decisions and problems in other code of conduct of the company. Unsystematic risks can be measured by alpha. Now we need to consider the various ty pes of risks that are associated with investing in the stock market. There are several types of unreasonable risks that are faced by the investors in the stock market. Evaluating and analyzing the risk that are involved in any investment is very complex. According to the risk taking ability the investors can be differentiated into different category. Risk taking ability of an investor is known as risk portfolio of the investor. There are several types of investors like high risk potential investor, medium risk potential investor and low risk potential investor. Risk tolerance level of an investor depends upon several factors like the age of the investor, objectives of investment, aim of the investment and future goals in life. Thus to discuss about the unreasonable risks we need to consider the several types of risks that can affect the performance of the investors in the stock market. Market risk includes a wider picture which means if an investor wants to