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When it comes to investments, they all carry some level of risk. Investments in stocks, bonds, mutual funds, SMEs, exchange-traded funds e.t.c can lose value anytime, if market conditions sour. In other words, your investments value might rise or fall because of market conditions (market risk). Therefore, understanding the differences can help you as an investor effectively diversify and protect your investment portfolio. Diversification helps you reduce the overall risk associated to your portfolio. Having created your personal financial goals, met with your financial advisor, your next step would be to decide what to invest in.
More often, increased potential returns on investment usually go hand-in-hand with increased risk. So you must find your comfort level with risk and then develop an investment strategy around that level.
When it comes to Risk and Reward. Reward is the possibility of higher returns, while the level of risk that comes with a particular investment or asset class typically correlates with the level of return the investment might achieve. The different types of risks may include industry-specific risk, competitive risk, market risk e.t.c. Several factors therefore influence the type of returns you can expect from your investments or trading in the markets.
You’ll sure do well by getting a registered financial adviser who can help you assess or analyze your financial needs, financial goals, risks involved and tax situation. Such can then help you build an investment portfolio suitable for you. And as you possess a better understanding of the nature of risks involved in the market, you keep taking steps to manage those risks effectively. Hence, you are able to meet your financial goals with proper mix of profitable investments in your portfolio.
Cheers!
