6-2 Journal Risk and Return in Investing PDF

Preview

Summary

This assignment is for module 4-2 the final project milestone 2...

Description

6-2 Journal: Risk and Return in Investing Joseph Devine FIN – 320 Principles of Finance Southern New Hampshire University – Professor Bennett August 4, 2021

RUNNING HEAD: 6-2 Journal Entry: Risk and Return in Investing For this journal entry, we will be discussing the risk and return in the stock market. In particular, we will look at the risk of investing in the market and the return an investor can receive. We also will review what can cause a stock’s price to go up and down. Finally, we will look at how the fluctuations of the stock will impact the decision. The stock market has its own inherent risk involved with it. The first risk that comes to mind is a downward economy. In a dreadful sudden catastrophic incident, stocks can swing and react, causing the stock to hit rock bottom. When the September 11 terrorist attacks occurred, the market took years to recover. Another risk one sees in the stock market is inflation. If an economy is battling high inflation, the value of stocks can be damaged, and recessions are possible (Little, 2020). Fortunately, stocks are the best hedge against inflation and recover more quickly than hard assets like real estate and precious metals. Another risk that can be associated with investing in stocks is detection risk. Detection risk is the risk that a company’s compliance program could uncover wrongdoing by the company causing a freefall in that company’s stock price (Beattie, 2021). Many different factors dictate a stock’s price direction. As mentioned previously, a booming economy will cause stock prices to soar while a receding economy will cause them to fall. With stocks in the pharmaceutical arena, prices can be affected by new drug releases or upcoming FDA approval dates. Generally, the stocks tend to rally before the announcement mentioned above and sell off after the information. Some stocks maintain their price level and go on to obtain all-time high prices. Risk drives return on assets. The riskier an investment is, the better chance one has on a significant return. An investor must be willing to accept the risk associated with investing to maximize their return. The need, willingness, and ability to take risks and stay invested for the 2|Page

RUNNING HEAD: 6-2 Journal Entry: Risk and Return in Investing long-term will allow an investor to ride out volatility and ensure profitable returns (Wealth Management Institute, 2017). For example, suppose an investor buys in to a crypto stock, such as MARA. In that case, they will be best served by ignoring the short-term volatility and focusing on the long-term forecasting that cryptocurrency will continue to rise. Doing this will allow the investor to ride out the price swings and capture the most gains. The stock mentioned above is a personal investment of the author. As of February, MARA was purchased at $17 per share after researching the stock forecast and relationship to Bitcoin. Today, that portfolio enjoys over 600% returns and is currently fluctuating between $50 and $60 per share. The investment decisions would apply whether for business or personal investments as the goal is the same, to maximize profits.

3|Page

RUNNING HEAD: 6-2 Journal Entry: Risk and Return in Investing References

Beattie, A. (2021, March 4). 10 Risks That Every Stock Faces. Investopedia. https://www.investopedia.com/articles/stocks/11/risks-every-stock-faces.asp Little, K. (2020, August 24). A Look at the Major Types of Risk for Stock Investors. The Balance. https://www.thebalance.com/major-types-of-risk-for-stock-investors-3141315 YouTube. (2017). Financial Education: Risk & Return. YouTube. https://www.youtube.com/watch?v=4KGvoy_Ke9Y .

4|Page...