In the present market scenario, investing in the market involves a lot of risk. But there are ample investment options that are less risky and assist you in earning substantial returns on your investment. Though the Stock Market still requires time to recover from the effects of the economic slowdown, the present fluctuating unstable market provide a lot of good opportunities for investment purpose.
One must keep in mind that almost any sort of investment involves a certain percentage of risk depending on its type. But there are four categories of investment that have stable rates together with guaranteed returns as compared to the unpredictable sections of the Stock Market. They cover bonds, CDs (Certificates of Deposit), money market mutual funds and savings accounts.
Always remember that any kind of investment involving less risk will also result in getting lower returns than live stock. On the contrary, high levels of risk mean potentially higher returns on the investment. If you have complete knowledge about the risk involved in your selected stock investment, it will be of great help to you so as to determine which particular assets (e.g., cash, bonds, stocks, real estate, etc.) best suit your investment strategies.
Risk has several definitions. Risk is the variation of return. It also means the amount of variation in expected return. Risk can also be taken as the likelihood of loss. The risk profile of an investor refers to his comfort level with different levels of investment risk. Different profiles suit different types of investments.
If an investor is aware of his risk profile, he:
– Knows how he will react to the various risks in the Stock Market;
– Can create his investment or trading style that is best-suited to him;
– Can select the best-suited stock among the vast variety of stocks available in the market; and
– Knows the appropriate position size for each trade based on his tolerance of risk.
Many of the beginners face the problem of determining their tolerance level. Thus, it is extremely essential to have an appropriate level of knowledge and skill if you want to select appropriate investment or trading strategies.
The risk tolerance of an investor usually changes over time. There are certain factors that can affect your tolerance level, such as age, market knowledge, investment goals and so on.
Investing in a stock market reveals numerous questions, uncertainties and anxieties developing in the mind of an investor. But if you have good understanding of your risk profile, you are likely to get long term success in future.
There is a proven safe way of investment. That is, spreading your investment among various sectors. It is always considered unsafe to invest all of your funds into a single investment. Thus, invest in different sectors, such as term deposits, property and shares, international markets investment and many more. This will definitely lower your risk factor to a great extent.