Common Stock Risk & Investor Profile — Q&A

Benefits, Risks, TIpical investor — know all three for each product to make suitable recommendations.

(1) Capital appreciation (unlimited gain potential; most common return), (2) Dividend income, (3) Hedge against inflation (stocks tend to outpace inflation long-term).

No — market risk cannot be diversified away. Systematic risks: market risk and inflation (purchasing power) risk. Non-systematic risks can be reduced through diversification.

2008 S&P = market risk (systematic). BP spill = business risk (non-systematic). High debt = financial risk (non-systematic). Hard to sell OTC = liquidity/marketability risk (non-systematic).

DPR = $2.11/$5.19 = 40.6%. DPR compares dividends paid to earnings per share. Walmart is a blue chip (~$500B revenue) paying dividends as a mature company.

Growth (e.g., Amazon): expanding revenue, little/no dividends, high capital appreciation potential. Value: “bargain” price, well-established, large dividends relative to price — suits retirees seeking income.

30 → 70% stock / 30% bond; 60 → 40%/60%; 70 → 30%/70%. Subtract age from 100 for stock %. ⚠️ Age alone isn’t sufficient — an 80-year-old with vast wealth may hold 80% stock; a disabled 20-year-old may hold only 20%.

Unlisted stock trading below $5/share, often small/unknown issuers. Most aggressive investors only — amplified non-systematic risks and extreme volatility.

~$60.7 billion → large-cap (>$10B). Smaller companies = higher risk profile. ⚠️ Large-cap isn’t foolproof — Lehman Brothers had ~$60B cap in 2007, bankrupt 2008.

Dividends are not guaranteed (higher risk); bond interest is a legal obligation. Higher risk can accompany higher return potential — companies cut dividends in 2008 and COVID-19 crises.