Investment risks and how to manage them
The main risks of investing in stocks (market, company, concentration, currency, liquidity, leverage and fraud) and what you can do about each one.
2 min read · Jorge Avila Meléndez
Every investment carries risk, including the possibility of losing money. Risk is not eliminated, it is managed: knowing it helps you decide how much to take and how to protect yourself.
The most common risks
| Risk | What it is | How to manage it |
|---|---|---|
| Market | The whole market falls, due to a crisis or recession | Long horizon and no panic selling |
| Company | One company does badly or goes bankrupt | Diversification and analysis |
| Concentration | A single position weighs too much | Maximum range per position |
| Currency | The peso strengthens and your dollar investment is worth fewer pesos | Long horizon; see exchange rate |
| Liquidity | Few buyers, so you sell at a bad price | Use limit orders, avoid thinly traded listings |
| Leverage | Instruments that multiply both gains and losses | Use them little or not at all |
Leveraged instruments
Leveraged ETFs (such as TSLL or SOXL) aim to deliver two or three times an asset's daily move. They reset every day, lose value when the price swings a lot and, in sharp drops, can lose almost everything. We explain them in what is an ETF. On this site they are flagged with a notice when a portfolio buys them.
Fraud risk
The risk that hurts beginners most is not in the market, but in people who promise easy profits. Warning signs:
- Guaranteed returns or «no-risk» returns far above normal.
- Someone asking for money to invest it for you in their account, by transfer or in crypto.
- Pressure to decide fast or to invite other people.
- Profiles that impersonate well-known people on social media or WhatsApp.
At Viernes de Invertir nobody manages anyone's money or asks for money to invest it. Everyone invests in their own account, at a regulated institution. If someone contacts you using the name of an investor on this site to handle your investment, it is a fraud.
Personal risks
- No emergency fund: it can force you to sell at a bad time.
- Investing money you need soon: stocks can take years to recover from a drop.
- Borrowing to invest: it adds a risk you do not control.
What matters to get started
- Risk is not eliminated; it is spread out and managed.
- Diversification, a long horizon and a plan reduce almost every market risk.
- Be wary of any promise of guaranteed profits. See investor mindset.