Know the risks before you put any stock in shares
THE collapse of construction company Carillion will mean that thousands of small investors could lose substantial amounts of money.
Ordinary shareholders are generally last on the list of creditors to be paid out when a company goes into liquidation and that means, in their case, shareholders will lose all of their investments.
Many shareholders will have sold their holdings in the last few months as they read and heard about the worsening situation at the company.
But the fact the Government continued to be seen to be supporting them by awarding further contracts would have encouraged many others to hold on to their shares in anticipation of an improvement.
Investors with shares in Carillion will continue to see their shares listed but won’t be able to trade and eventually, when the liquidation process is complete, the shares will disappear with nil value, assuming there isn’t enough money to pay all the other creditors and leave some over for shareholders.
This episode highlights yet again the risk involved in investing in the stock market, especially with companies who have already issued profit warnings and are known to be in trouble.
The value of your investments can fall as well as rise, says the warning on the biscuit tin.
Some cynics have changed it to fall as well as tumble and there is no doubt that investing in shares is still a risky business.
It’s easy to get carried away on the back of a decent stock market run, like we are enjoying at the moment, but as Carillion have shown, the fact that the index is rising doesn’t mean that every share within that index is making money for investors.
Having said that, the collapse we’ve just witnessed at Carillion is actually relatively rare and shouldn’t put investors off stock market investments.
The important thing is to understand the risks and to not invest any money that you are likely to need in the short term.
You should also only ever consider stock market type investment when you know that you have some money set aside to cope with any short-term emergencies that you might face.
■ Don’t invest in the stock market unless you’re happy with the risks involved. ■ If you haven’t switched energy suppliers recently, use a comparison tool to make sure you get a good deal.