The risk and return relationship should be the foremost rule that we should consider in terms of investing. The risk and return are always interconnected with each other. You may ask, how are they so related? In a business if there is a low risk, this will result to a low yield; and high risk will really give you a high return in potential. So there is really no such term as an investment that has a high yield but low risk. When you hear this kind of statement, you may as well doubt it and it is more often than not--a scam.
A risk is always a part of everything that we do and should be accepted as part of our lives. It is usually seen anywhere, whether financial, emotional, spiritual, and of course physical. From the time we are born into this world we are exposed to the elements of risk until we expire. Risk will always be a part of us; the question is, how we may able to avoid it, manage it or even transfer its threat.
But why are we avoiding taking risks? We will not gain anything if we prevent it from happening. In business or finance, we will not profit if we avoid taking chances. In the end, we do not lose anything but we do not gain something either. It is not a wise decision since the value of money is lost most of the time because of inflation. If your money will not lose anything like capital, your money will result to a lower purchasing power. In other words, you lost money. No pain, no gain.
You may also take advantage of the so-called transfer of risks, but remember that not all risks may be transferred. A typical example of risk transfer is buying insurance for your life or your property. Transferring risk to your valuable possessions or income risk because of a death of a family member are typical examples. This risk transfer is very costly as premium payments need to be made or may be done in a form of options, derivatives, among others. Bear in mind that some risk transfers may cause even more problems and will work.
If there is too much risk, a decrease in the amount of the capital will really show. Very little risk may not be so good either too. If your money is invested in short-term guaranteed instruments, lower yield will result as compared with inflation. There will be no fund growth at all, thus only a little amount of money will generate especially if you expect your money to grow twice as much.
There is really no way that you may be able to manage your own risk that will generate a positive result. Others will say that some risks may be avoided, but of course they can work sometimes and other times they do not work. Continuous learning is all what is needed and constant analysis through fundamental tools may eventually work in the end.
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