• Although stocks have historically been a great way to invest, there are risks involved in stock ownership. The price of a stock can decline due to company-specific reasons as well as the health of the overall stock market. Even dividends, which many beginning investors believe are guaranteed payments by the company, can decline or be totally eliminated.
  
  

Stock Price Declines Due to Change in Company's Fundamentals

• A stock's price can decline due to changes in the underlying company's fundamentals. If a company's growth slows or profit margin declines, then the stock price may decline. Also, if a company's fundamentals change for the worse, then Wall Street analysts may downgrade the stock, which may also cause the share price to fall.
  
  

Decline in Stock Price Due to Decline in Overall Market

• Although every stock trades independently of the overall market, a drop in the stock market can cause a decline in a particular stock regardless of the fundamentals of the underlying company. As a result, an investor in the best-performing company can suffer a loss if the overall stock market declines.
  
  

Company Bought Out

• If a company is bought out, then the stockholders of the target company may be granted shares in the acquiring company. This may not be a bad situation, but there is the possibility that the stock of the acquiring company does not meet the standards of the investor. Whenever an investor gets stock of a new company due to a merger or acquisition, he must evaluate the new company to determine if he wants to hold the shares or sell them.
  
  

Decrease in Dividend Payment

• Many investors buy stock in a particular company because of the dividend payment. A dividend payment can be reduced or completely eliminated by the company at any time. A reduced dividend payment will lower the total return that an investor earns on his investment.