When most people think about risk, they tend to think of it in predominantly negative terms, as something to be avoided or a threat that hopefully will not materialize. However, in the investment world, risk is inseparable from performance and rather than being desirable or undesirable, risk should simply be regarded as necessary. What is investment risk? Investment risk is widely regarded as the chance that an investment’s actual return will be different than expected. This includes the possibility of losing some or all of the original investment. It is important for investors to understand that accepting risk is one of the most important parts of becoming an affluent investor.
When it comes to investing, risk and reward go hand in hand. The reward for taking on risk is necessary if investors hope to reach their potential for a greater investment return. If you have a financial goal with a long-term plan, you may increase your returns by carefully investing in higher risk assets, such as stocks or bonds, than if you limit yourself to less risky assets like investing in shipping containers. Whatever your investing goals may be, the risk versus return trade-off is a vital factor to be strongly considered, before investing. Investors must keep in mind that low levels of uncertainty (low risk) are associated with the potential for lower returns and high levels of uncertainty (high risk) are associated with a higher potential for big returns.
Determining the amount of money you can stand to lose is another important factor to consider, when determining your risk tolerance. Although this may not be the most optimistic method of investing, it is the most realistic. By investing only money that you can afford to lose, or afford to have tied up for (perhaps) an extended period of time, you can learn to accept that their are risks to be expected and avoid being pressured into selling off any investment holdings; simply because of a market panic or liquidity concerns.