Understanding Investment Risk

Now let’s blog a bit today about understanding investment risk. Have you ever invested in the stock market on a hot tip, only to escape with just your burnt fingers? Not to worry, it happens to a lot of people. But that can be prevented by taking the proper precautions and doing some basic research.

Years ago I would spend hours and days reading financial statements and calculating the various ratios by hand. Today via many internet sites, I can turn those days of tedious work into mere seconds and minutes. This information is available everywhere.

But still it is necessary to understand investment risk. No get-rich scheme will ever bring you peace and security. No method of investing, no category of investing, and no investment vehicle will shorten the time needed to see a financial return. If someone insists that they have a way for you to easily make a greater than average return on any investment, hang up the phone or turn and run in the other direction. With regard to your money, there will always be someone more than willing to separate you from it. Just remember that hot tips lead to burnt fingers.

If you’re like many investors, you want to get the highest possible return on your investments while assuming the least amount of risk. Unfortunately, finding a comfortable balance between risk and reward can be difficult.

When planning your investment strategy, you need to determine your risk tolerance level. The amount of risk you can handle in your portfolio depends on several factors—your age, family situation, your current income and your financial goals. The amount of risk you are willing to assume can help you determine the types of investments you may include in your portfolio.

At some later date, I will write about the various risks you must watch out for.

Content © Rich Brott, 2011

Information & Discussion

Join in on the discussion or Email this article to a friend

Other Posts

Write a Comment

Take a moment to comment and tell us what you think.

You must be logged in to post a comment. Click here to login.

Reader Comments

Great thoughts rich. Certainly can be tempting sometimes to look for the hot tip or the easy way. I know especially for young guys like me we can tend to be impatient with investing and finances and look for the quick easy returns. This advice is balanced and helpful. Thank you

I agree, great thoughts. Keeping in mind the risks, learning to invest at an early age and sticking with the idea of saving for your future is really important. I look forward to reading more on this website. Thanks!

Thanks Ben for your excellent comments with Australian insight! Easy returns are never that easy, are they.

Thanks Doug! As a successful businessperson, you know the importance of positive cash flow.