Risk factors for investments

Whenever you are considering purchasing a particular kind of investment, one of the key things that you should have a clear understanding about is how much risk is involved. Risk is an integral part of any investment, however, an investor should never take on more risk then they are comfortable assuming. This makes it crucial to do your research before making any investment purchase. The ability to tolerate risk will differ greatly from investor to investor. For example-If you are a younger investor, then you may be able to assume a higher degree of risk, since you have more years to work and make up for potential losses. However, if you are only a few years away from retirement, you may want to have more conservative investments, since your working years are numbered. The personality and financial goals of each investor will highly determine how much risk they will accept.

However, before deciding how much risk you will accept it is crucial to determine how much risk any particular investment is carrying. This can be difficult without an in-depth analysis of certain key factors. Understanding what these factors are and how they contribute to the risk of the investment, will help you determine if this is the right investment for you. Here is what you need to know about risk factors for investments-
- Does the company have a dependence on a few key suppliers? This can indicate a serious problem if the supply chain, for any particular business is ever cut. If you are considering investing in a company, you want to make sure that they can access their needed supplies, from a wide range of vendors. There are plenty of stories that abound about companies that were making a hot product, growing rapidly and expanding, only to come to dead stop because they could no longer access their needed raw materials. You want to make sure that any business you are considering investing in, can cast a wide net, when it comes to using suppliers.
- Does the company have a dependence on a few key customers? Just as bad as depending on a few suppliers, is the company that is basing its entire sales on a few customers. The economy has shown that today's customers can be tomorrow's lost sales. If the business you are considering investing in relies on a couple customers, to make most of their sales, then this is a red flag. While things can continue in a positive way, for a long time to come, they can also change overnight. You best bet is to consider investing with a company that has a wide pool of current and potential customers, this way if a few customers drop away, it should not affect the overall profitability of the company.
- Does the company have a dependence on a key, single product?While everyone loves a hot product, everyone doesn't love it forever. Trends fade and the item that is hot today, can be very cool tomorrow. If the business you are considering investing in has only one product that is doing well, and worse yet has not plans for other products, this is a red flag that this investment should be avoided. Savvy investors are looking for companies that have long term growth potential. Companies that are interested in long term growth, will have plans to either modify their current products, for future potential, or they will have well developed research and development arms that will provide them with future products.If the business you are considering investing in, does not seem to have this, you need to be prepared to take your investment somewhere else.