Risk and return are inextricably linked. Investing risk comes with potential for investing rewards. Risk is any uncertainty with respect to your investments that has the potential to negatively affect your financial welfare. The level of risk associated with a particular investment or asset class typically correlates with the level of return the investment might achieve. The rationale behind this relationship is that investors willing to take on risky investments and potentially lose money should be rewarded for their risk. Thus, low levels of risk are associated with low potential returns and vice versa.
Investing in the capital markets has no guarantees. As much as one can make a lot of money, one can easily loose it as well. For instance, in the stock market, share prices can go up or down depending on the general micro and macroeconomic environment which the ordinary investors have no control over. When share prices fall, an investor runs the risk of losing the money. In the event of liquidation, ordinary shareholders are paid last after everyone else who has a claim on the company’s assets has been paid. Remember, there is always risk in every investment, but with education and research one can minimize that risk. As one gets more education one can better decide how much risk one wants to take and conversely how much return one needs to make. Understanding the risks is the first step toward minimizing them. Before investing, it’s a good idea to do some research and get proper advice from licensed intermediaries. Be careful and be wise with your investments, take time to do your homework and be prepared to make adjustments when the situation calls for it, because, if you don’t, you may end up losing all or some of your investments.
