10 Significant Risk Factors When Investing in a Company

Sociopolitical Risk
Protesters in India. When investing in a new company, find out what percentage of its products are made in countries with a lot of political unrest. Waseem Andrabi/Hindustan Times via Getty Images

We hear a lot of talk of businesses "going global," and assume that means the company is selling its product or service worldwide. But even if an American company exclusively sells its services in the U.S., it still may depend heavily on labor and raw materials from other, often less stable regions of the world.

"American" products are made in Mexico, China and India, and the materials to make those products — oil, rare metals, lumber — are extracted from oilfields, mines and rainforests in countries that change leaders through coups and uprisings more often than democratic elections. Find out where your target company makes its products and how dependent it is on resources from politically unstable regions [source: FINRA].

We should note that not all investors are risk-averse. Some investors — investment professionals, more likely — specialize in "emerging markets," countries whose economies are expanding rapidly, but lack the financial infrastructure and regulations of more established markets. The greater risk of such investments can result in larger and faster returns than a more conservative investment, but the potential for loss is equally high.