How risk and investing are connected
One of the most basic premises of investing is to understand that all investments carry a certain amount of risk. There is no investment that does not have some amount of risk, not matter how small. You will have to accept that risk is inherently tied to investing, if you are going to be a successful investor. However, it is important to understand that not all risk is wrong or even negative. Some risk is essential to investing, though you must keep in mind that you should not take on unnecessary or even too much risk. It would not be beneficial or even possible, to eliminate all risk from investing. Because of this fact all investors must be able to take on some tolerance, for accepting risk. Risk will always be a part of investing, and there is just no way to get around that. The reality of that is that there could be a negative outcome, (no matter what you do) because of the amount of risk that is tied to investing.
Even if risk could be eliminated from the world of investing, the reality is that without risk, every investment would have to have a much higher interest rate on debt and there would be larger returns on equity investments. Because of the stringency of these conditions, this would slow business down dramatically and worse yet, there would be little research and development, for any new projects. The majority of business development would simply dry up. Growth would be priced out of the market and everyone would suffer because of it, in higher prices and lower selection. The bottom line is that risk rather then being a danger to investors is more of a stimulant for economic growth.
It is also important to stress that recklessness and risk are not the same thing. You should be diligent that any investing decisions that you make, are not based in being reckless. While you will need to embrace some risk, recklessness should be avoided at all costs. The good news is that there are guidelines that can help you do just this. These investing guidelines are-
- Consider both the risk and the reward-If you cannot assume some of the risk, it is unlikely that you will find sufficient reward within any investment. You cannot assume that low risk and high reward are a valid combination. The key to being a successful investor is to decide just how much risk you want to take on, in direct correlation to any potential reward. It should be noted that this distinction will be vastly different for each investor. Each person will need to determine who much risk, they can assume at a comfortable level. There are several different factors that each investor will need to consider. These factors include but are not limited to: personal needs, investing goals, and the personality of the investor. Financial experts agree that when investors have done the right amount of research into their investing choices, they are much more likely to choose investments with the right amount of risk.
- Consider the need to act with care and consideration in your investing decisions-The most successful investors are the ones that take the time and make the effort to do the research and learn all of the facts, before they allow money to be involved. You want to make sure that you are being smart and prudent, in your investing, and then the amount of risk will be acceptable and appropriate. When you take on risk prudently and carefully, you can use your investing to build the wealth that investing can bring you, however, you need to be highly realistic with your expectations.