What are the risks involved in equity investing?
There are various risks that companies are exposed to and when you invest in equity, your returns are affected by these risks. These are business risks (i.e. the risks associated with the prosperity of a business and the demand for its products), financial risks (the skill with which a company’s finances are managed to ensure that it has an optimum level of debt, equity, reserves, etc.), industry risk (changes in technology, regulations, fashions, etc., affect the performance of an industry), management risks (the level of corporate governance, management skills and vision), political, economic and exchange rate risks (these factors affect a company but are outside its control). There are other risks, such as market risks (the risk that the market will collapse, or that you have invested at the peak), which determine your returns on your equity investment.
