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Lifestyle

The Reality of Risk in Investments

 

When you’re about to do something that has possibilities of danger, it is said that you’re taking a risk. A risk is a situation that brings about exposure to danger; it is the intentional interaction with uncertainty, the potential of gaining or losing something of value.
You must have heard the saying that, life is full of risks; yes, so many risks ranging from taking that high jump, driving, biking, walking and even sitting down for a rest under that mango tree; they are all risks in it’s various degrees ‘cos there’s a potential of danger in (almost) all the activities of life.
 ‘Investment is a risk’
You definitely must have heard this saying as this is one of the popular advice freely given to anyone who is sighted with a pair of ears while carrying out anything that removes money from the comfort of their pocket; and this has scared many away from the subject of investment. To them, it’s better to be safe than sorry.
But come to think of it, many have sustained terrible injuries as a result of a fall from high heights; yet many are still exploring greater heights, an innumerable number of people have had disastrous accidents through driving and have touched the tail of life’s greatest risk – death; yet many are still driving and an upcoming multitude are on the queue to drive. Why then do the fear of losing cash stop you from harnessing investment opportunities that will step you up to higher heights in your finances?
It is understandable that investment is metaphorically termed a risk; as your hard earned money is on the verge to leave the comforts of your pocket for a journey into the (un)known. The futuristic uncertainty if the money will actually come back with its expected returns, the heartbreak you’ll experience if it doesn’t, and the ill scenarios it may press play on if such investment does not turn out fine.
You see, it is true that investment and risk seems to be chained together and therefore inseparable. All investments carry some degree of risk; be it Stocks, bonds, mutual funds and exchange-traded funds, they can lose value, even all their value, if market conditions go sour. But a clearer truth you need to understand is that there are different levels of risk, and you can actually swim according to your level of risk tolerance.
While swimming according to your level of risk tolerance, it is good you know that the level of returns on your investment reflects the level of your risk. That’s why seeing a high level of returns with a low or zero level of risk most of the times is a red light indicator for possible scam.