what are the risks of investing in shares

Wojciech

Wojciech

Diploma for Financial Advisers
Diploma in Accounting
Member of London Institute of Banking and Finance


Investing in shares (or stocks) can help grow your money over time, but it’s not without dangers. If you’ve ever asked yourself, “what are the risks of investing in shares?”, it’s important to understand that the stock market offers big rewards but also comes with big risks. Let’s break down these risks in simple terms so you can make smarter choices as a UK investor.


1. The Market Can Drop Suddenly (Volatility)

Stock prices change daily—sometimes by a lot. This is called volatility. A company’s shares might rise one day and crash the next because of news, global events, or even rumors. For example, if a war starts or a company loses customers, its stock price could fall fast. If you need cash quickly during a drop, you might lose money.


2. You Could Lose All Your Money (Company Failure)

If a company goes bankrupt, its shares often become worthless. Even big, well-known companies can fail (think of Blockbuster or Lehman Brothers). Unlike savings accounts, stocks aren’t insured. If you invest in a failing business, you might lose every dollar you put in.


3. The Economy Plays a Role (Systemic Risk)

The whole economy affects stocks. During a recession, people spend less, companies earn less, and stock prices drop. Events like inflation, high interest rates, or a pandemic (like COVID-19) can hurt the market. Even if you pick “good” stocks, a bad economy can drag them down.


4. Emotional Decisions Can Backfire

Fear and greed often drive investors to make mistakes. For example, panic-selling during a market crash locks in losses. Or, buying “hot” stocks because everyone else is (like meme stocks) can lead to bubbles that eventually burst. Staying calm and sticking to a plan is hard but important.


5. Some Stocks Are Hard to Sell (Liquidity Risk)

Not all stocks are easy to trade. Shares in small companies or foreign markets might have few buyers. If you can’t sell when you want, you might have to accept a lower price—or wait months to cash out.


6. Dividends Aren’t Guaranteed

Some investors rely on dividends (a share of company profits). But companies can cut or cancel dividends anytime, especially if they’re struggling. If you need steady income, this unpredictability is a risk.


7. Scams and Misinformation Exist

Fraudsters often target new investors with “get-rich-quick” schemes or fake tips. Social media hype can also trick people into buying overvalued stocks. Always research before investing and stick to trusted sources.


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How to Reduce These Risks

  • Diversify: Don’t put all your money in one stock. Spread it across industries, countries, and even other assets (like bonds).
  • Invest Long-Term: The market usually grows over time. Avoid checking prices daily.
  • Research: Understand a company’s finances, leadership, and competition before buying.
  • Use Reliable Resources: Government websites like the UK Government’s Money Advice Service offer free guides to avoid scams and learn basics.

Final Thoughts: What Are the Risks of Investing in Shares?
Investing in shares can build wealth, but it’s not a guaranteed path. Asking “what are the risks of investing in shares?” is the first step to protecting your money. By learning about volatility, company failures, and emotional traps, you can make informed decisions. Always stay curious, diversify your portfolio, and use resources like the UK Government’s Money Advice Service to stay safe. Remember: no investment is risk-free, but knowledge helps you manage those risks better.


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