Investing Basics – Risk vs. Reward

May 29, 2008 · Posted in Investing 

The money you have saved over the many years of hard labor corresponds to a safety guard to be used in case of an emergency. That is exactly why for most individuals thinking about investing money on the stock market becomes an excessively emotional endeavor complicating the decision making process when the time comes to take action.

Even if this is not the case, you might still be asking yourself whether investing is the right choice for you and if the various risks normally associated are worth the rewards. It is very hard to determine whether investing is a good or bad idea because it all depends on the individual and the money he intends on setting aside for this purpose. The good news is that in the case of the stock market, there is no need for a huge sum of money to start trading. If you don’t have any extra money a solution would be to set up a savings account for serve as an investment fund to be used in the future.

Investing money always involves some levels of risks. Usually the higher the risk the higher the end reward. Basically if you are interested in earning the maximum possible return with each investment or have a high risk tolerance, you might want to invest in futures contracts. On the other hand, if you have a low risk tolerance the best solution will be to set sight on more conservative investments and play things on the safe side.

To minimize risks there are some techniques that could help like diversifying by investing in various different stocks. Diversification insures that all the eggs are not put in one basket, in this way reducing the overall risk to your portfolio if something should take a turn for the worst. Using this method also insures you maintain a high potential return given that the money is spread on various stocks.

In conclusion, the best way to minimize risks is to evaluate each individual investment together with the potential return, and in this way organize a well balanced portfolio. After diversifying in various stocks from various sectors or industries, since you don’t want to have a large portion of your portfolio concentrated in one area, the dangers of losing a lot of money all at once turn out to be considerably reduced. In simple terms, when investing responsibly the rewards prevail over all the risks.


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