Low-Risk Vs. High-Risk Investments

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Low-Risk Vs. High-Risk Investments

How do people get rich? Hardworking isn't enough nowadays. So, many will answer, we need side income, when need passive income. But, how? Let's first talk about investment! But!(Yea, there always a BUT to restrict you action huh?!). Do you understand what risks you are encounter with, with so many types of investment? What kind of investment is suitable for you?

Risk is essential to investing; no discussion of rerurns or performance is complete without at least mention the risk involved. The difficulty for inexperienced investors, however, is determining where risk genuinely sits and what the variations between low and high risk are.

Because of the importance of fundamental risk to investing, many new investors believe it is a well-defined and quantifiable concept. Unfortunately, this is not the case. As strange as it may seem, no one can agree on what "risk" implies or how it should be measured.

A better way to think about risk is as the chance or probability of an asset losing its value permanently or performing below expectations. If an investor buys an asset with the expection of a 10% return, the risk of that investment is that the return will be less than 10%. This also mean that underperformance relative to an index isn't always a sign of danger. If an investor expects a 7% return on an asset and receives an 8% return, the fact that S&P 500 returned 10% is virtually irrelevant.

Because of the importance of fundamental risk to investing, many new investors believe it is a well-defined and quantifiable concept. Unfortunately, this is not the case. As strange as it may seem, no one can agree on what "risk" implies or how it should be measured.

A better way to think about risk is as the chance or probability of an asset losing its value permanently or performing below expectations. If an investor buys an asset with the expection of a 10% return, the risk of that investment is that the return will be less than 10%. This also mean that underperformance relative to an index isn't always a sign of danger. If an investor expects a 7% return on an asset and receives an 8% return, the fact that S&P 500 returned 10% is virtually irrelevant.

Low-Risk Investment

Low-risk investing, by definition, has a lower stake——either in terms of the amount invested or the importance of the investment to the portfolio. There's also less to gain——either in terms of possible return or potential long-term benefit. Low-risk investment entails not only protecting against the possibility of any loss, but also ensuring that none of the potential losses are terrible.

When investors believe that investment risk is determined by a loss of capital and/or underperformance relative to expectations, it becomes much easier to distinguish low-risk and high-risk investments.

When investors believe that investment risk is determined by a loss of capital and/or underperformance relative to expectations, it becomes much easier to distinguish low-risk and high-risk investments.

High-Risk Investment

A high-risk investment is one in which there is a high probability of capital loss or underperformance or a comparatively high probability of a major loss. The first is self-evident, if subjective: You could consider it dangerous if you were told your investment has a 50/50 chance to earn your expected return. Almost everyone would agree that it is risky if you were told that there is a 95% chance that the investment will not earn the expected return.

So, refer to a simple chart, and ask yourself, am I ready to take a bigger challenge? How financial ready I am? When investors believe that investment risk is determined by loss of distinguish low-risk and high-risk investments. However, is capital gain loss a sole factor do determine risk of investment? I would not say so!

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