The Relationship Between Investment And Risk Factor

The Relationship Between Investment And Risk Factor

Risk cannot be separated from the investment. Whenever you make an investment in any shape, the risk is always involved in that investment. When you opt to invest, there is a high degree of chance of risk, but on the other hand, when you decide to make savings or money deposit, you tend to face the least amount risk so is the return.

Rule Of Thumb 

A general rule of thumbs is, the more the risk, the more will be the return and vice versa. But you can add to this rule, the more the risk, more the return is and it is less likely that you may achieve the high returns.

Comfort Level

In order to understand the relationship completely, you should know where the comfort level is for you. Moreover, you need to understand the gauge correctly between the investment and the risk factor.

Possibility Of Risk Factors In Mind

Here some of the fears that people may experience depending upon the nature of investment;

Fear Of Losing Principal

  • There is always that fear in your mind that you may lose whole or part of your principal amount that you invested.
  • Usually, it is observed that high yield bonds or individual stocks may cause you to lose your principal amount.
  • The best way to avoid this is to make a lot of search before investing.

May Catch Prey Of Inflation

Inflation is an unstoppable thing;

  • Prices of everything are increasing on daily basis. But your investment may not run with the pace of inflation.
  • This situation is most likely to happen when you make an investment in treasury bonds, municipal bonds or cash equivalent.
  • You need to be proactive while making an investment in such type of securities.

May Not Meet the Desired Level

The investment may not yield up to your expectations;

  • Suppose you made an investment for your future requirements, but after some time you realized that investment may not earn you enough to meet your future requirements.
  • In such a situation, make a bold decision to either reinvest or shift your whole investment to any other type of investment.
  • You can create portfolios instead of stuffing all eggs in one basket.

High Management Cost

There is always that fear that management fee may increase with the passage of time, making it difficult to give more outflow;  This is usually possible when you make an investment in mutual funds.  So, the relationship between investment and risk cannot be separated. You have to learn the art of minimizing the risk and maximizing the return factor. Get quotes for a AARP medicare supplement plan at