Financial or company risk is associated with a company's financial structure. Market risk is associated with investors' expectations and the impact these expectations have on the market. At times, the price of a stock in a very financially sound profitable company can decline through no fault of the company. Many investors concluded that the plunging economies of Southeast Asia and some other areas of the world would eventually have a negative economic impact on the United States. During that three-month time, most U.S. companies continued to be extremely profitable, yet their stock prices declined.
Economic risk relates to the cyclical nature of businesses and the economy.
When the economy is robust, companies typically do well and their stocks appreciate. Conversely, companies may turn in weaker performances in a slow economy. Hmmmmm, let me think. D. Frank Norton, CPA, MBA, CFP, is a money manager and financial planner in Santa Clarita. All rights reserved.