| Financial education plays an important role | | | | that impacts investment negatively, foreign |
| in my life. Ever since I have realized that | | | | investors may withdraw their funds from the |
| it is important to make money work harder for | | | | stock market. This will result in the stock |
| me, I have been constantly reading and | | | | market crashing. In other words, I will lose |
| learning about financial education. With the | | | | money in my stock investment. |
| new knowledge that I have gained each day, I | | | | |
| have realized that I am improving in my | | | | Next, there is a risk of external events that |
| ability to identify risks in an investment. | | | | will affect the stock market. For instance, a |
| | | | terrorist attack will affect the stock market |
| Identify risks is the first step to evaluate | | | | because the confidence of investors is |
| an investment. If I want to be a | | | | shaken. Similarly, a great natural disaster |
| sophisticated investor as defined in the Rich | | | | will affect the stock market. |
| Dad's series by Robert Kiyosaki, then I | | | | |
| definitely need to be able to identify risks | | | | Then, there is currency exchange rate risk. |
| in an investment. If I do not know what are | | | | This is true if I have invested in stock that |
| the risks involved, I will not be able to | | | | is listed in foreign currency in a local |
| manage the risks. If I cannot manage the | | | | stock exchange. Another possibility is that I |
| risks, then I will have a high chance of | | | | have invested in a stock listed in a foreign |
| losing money in the investment. That is | | | | stock exchange. If the share price increases, |
| something that I want to avoid. If I had | | | | then I should be making money. But if the |
| foolishly invested without the knowledge of | | | | foreign currency depreciates in value against |
| the inherent risks in the investment, then I | | | | the local currency, then I may end up losing |
| would be considered to be a gambler than an | | | | money. |
| investor. | | | | |
| | | | Lastly, there is a risk of leverage. Before I |
| Every investment has risks that are obvious | | | | am allowed to trade in a stock market, I will |
| and risks that are hidden. Someone with a | | | | need to have a brokerage account with some |
| little knowledge can easily detect the | | | | money. Usually, the brokerage firm will allow |
| obvious risks. But for the hidden risks, it | | | | me to leverage by trading up to several times |
| takes someone who is experienced in that | | | | the amount of money in my brokerage account. |
| field to see. | | | | Sometime, the brokerage firm provides margin |
| | | | account for trading to enhance leveraging. |
| Take stock investment as an example, what are | | | | |
| the obvious risks and hidden risks involved? | | | | Leveraging is a two edged sword. It can work |
| | | | both ways. If the share price goes up, I can |
| The first obvious risk is the risk of losing | | | | make more money by leveraging. If share price |
| money. If I have invested in a stock and the | | | | goes down, I will end up with a lot more |
| share price drops, then I will be losing | | | | money to pay because of leveraging. |
| money. | | | | Leveraging is like a magnifying glass that |
| | | | will magnify my trading mistake. |
| The second obvious risk is that a company can | | | | |
| go bankrupt. When a company go bankrupt, the | | | | The list of hidden risks may not be |
| shares of the company become worthless. | | | | incomplete since I am still learning about |
| | | | stock investment. The main point that I want |
| The third obvious risk is that a company may | | | | to raise is that financial literacy is |
| de-list from the stock exchange. When a | | | | important as highlighted in the Rich Dad's |
| company de-list from the stock exchange, the | | | | series by Robert Kiyosaki. I have simply used |
| shares become worthless. | | | | stock investment to illustrate my point. |
| | | | |
| What about the hidden risks? | | | | * DISCLAIMER * |
| | | | |
| Firstly, there is a risk of addiction in | | | | The author only provides the material and |
| stock investment. This will cloud my judgment | | | | information as a layperson's views about an |
| in selecting stocks to invest. Where does the | | | | important subject. The materials and |
| addiction come about? When the share price | | | | information are from sources believed to be |
| goes up, I feel excited because I am making | | | | reliable and from his own personal |
| money. The effect of excitement is like | | | | experience, but he neither implies nor |
| drinking liquor to feel high. When the share | | | | intends any guarantee of accuracy. |
| price goes down, I feel depressed because I | | | | |
| am losing money. The effect of depression is | | | | All the materials, information and procedure |
| like taking alcohol to feel low. This up and | | | | in this book are only the author's personal |
| down of emotions is a source of addiction. In | | | | opinion. You must consult your own |
| fact, this risk exists in investments such as | | | | professional advisor and other reputable |
| options, currencies and commodities. | | | | sources on any matter that concerns you or |
| | | | others. |
| Secondly, there is a risk of falling in love | | | | |
| with a stock. Again, this will impair my | | | | The author, publishers and distributors are |
| judgment in selecting stocks to invest. How | | | | not competent and do not profess to give |
| do I fall in love with a stock? Well, all I | | | | legal, accounting, medical or any other type |
| need to do is to make money from a particular | | | | of professional advice. The reader must |
| stock a few times. Thus, I have attached a | | | | always seek those services from competent |
| positive experience of making money by | | | | professionals who can review your own |
| investing in that stock. When I am selecting | | | | particular circumstances. |
| stocks to invest, I will have tendency to | | | | |
| select that stock again even though the | | | | The author, publisher and distributors |
| technical analysis or fundamental analysis | | | | particularly disclaim any liability, loss, or |
| says otherwise. | | | | risk taken by individuals who directly or |
| | | | indirectly act on the information contained |
| Thirdly, there is a risk of the government | | | | herein. All readers must accept full |
| changing the policy thus affecting the stock | | | | responsibility for their use of this |
| market. If a government changes the policy | | | | material. |