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Because whatever/whoever you are investing in is not a sure thing. If you had invested in Enron 10 years ago, it was a bad risk. If you had invested in Microsoft 25 years ago, you'd be a happy camper - the investment/risk was worth it. When you invest your money, you're in essence betting your money that the business/person will do well. The risk is spread out. The higher the risk, the more your payback should be. If you want very little risk, get a savings account or US government bonds. There is still risk, but very, very little. Your return on investment will not be great, but you aren't risking much.
Wiki User
∙ 18y ago
Wiki User
∙ 18y agoWell it depends on the investment you make and the inherent risks of the investment. If, for example, you invested in the stockmarket you are investing into a company. As part owner of that company (on a miniscule scale of say 0.000001%) you will be given voting rights towards how the company should be ran. If the company's performance exceeds expectations/meets expectations you can expect not only a rise in the stock's value (and thus a gain if you were to sell your stock) but also the possibility of a dividend. Conversly if a company was to return lower than expected expectations you can expect the stock to decrease in value (as its worth may be less to potential investors) and there could be the possibility a dividend would be suspended/not paid - this would lead to the value of your investment being lower than your initial input if you were to sell the stock. The risk, therefore, is that the company could fail. If you invested your money in a home the basic principles are the same. The home may rise in price due to various factors (improved neighbourhood/facilities near your home, more buyers than sellers etc.), but again may fall due to the opposite effects (neighbourhood becomes run-down/more selling than buying etc.) The vast majority of investments have some form of risk. Even investing your money in a bank (by way of a savings account) carries a small amount of risk - banks have been known to collapse and people with savings in the bank had their money returned only in part (if at all). Infact even keeping your money in dollar-bills carries risk as the value of a dollar fluctuates across the international markets and inflation will eat into the value over time.
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What are the two key parameters used to make investment decision?
The two main parameters are: * Returns - Amount of returns we can expect on the investment * Safety/Risk - How risky the investment is. Generally risk and returns are directly proportional. Higher the risk on investment, higher would be the return on investment.
How do you calculate Excess Returns?
To calculate excess returns, subtract the risk-free rate of return from the actual return on the investment. Excess returns show the additional return earned above the risk-free rate, which represents the compensation for taking on additional risk. It is commonly used to evaluate the performance of an investment or portfolio.
Invest in mutual funds or bonds?
It depends on your investment goals and risk apetite. If you are a high risk investor willing to take a few risks with your investment for higher returns go for Mutual funds. If you are a safe investor willing to compromise on returns for safety then go for bonds. Bonds are debt instruments and hence safe whereas mutual funds are stock market instruments and hence carry a risk.
What are the Questions asked by customer related to investment?
Some common questions are: # Risk profile - Chances of losing the investment # Returns on Investment # Investment Tenure # Reputation of the investment house # etc...
Which type of investment is NOT easily found in the marketplace?
low risk, low returnsmedium risk, medium returnshigh risk, high returnslow risk, high returnsthe answer is LOW RISK, High RETURNS
What is a good sentence for the word 'risk'?
'Starting a business is a risk, but it can create handsome returns.' 'Before investing in shares, one must look at the potential risk of such an investment.'
What is sharpe ratio?
The Sharpe Ratio is a financial benchmark used to judge how effectively an investment uses risk to get return. It's equal to (investment return - risk free return)/(standard deviation of investment returns). Standard deviation is used as a proxy for risk (but this inherently assumes that returns are normally distributed, which is not always the case). See the related link for an Excel spreadsheet that helps you calculate the Sharpe Ratio, and other limitations.
How much importance should be given to the fact that while the gains from the retirement of a loan can be estimated the returns from an investment always carry a risk?
Maybe it is because of the uncertainty of the economy ( the ups and downs of the stock market)"How much importance should be given to the fact that (while the gains from the retirement of a loan can be estimated) (the returns from an investment always carry a risk?)"I sincerely apologize for getting technical with grammar but I would like to answer your question as accurately as possible. I bracketed the parts of your question because I'm not sure what you're actually asking. I will try to answer it in the two ways I can see it being asked.1) How does the retirement of a loan impact investment risk?The reduction of debt on the books of a corporation can positively impact its financial strength, thereby potentially reducing some of the risk involved in investing in that company. However, any investment, including a savings account, will always carry some element of risk.(With a savings account you can carry "opportunity" risk. By not investing in the bond or stock markets, or anything other than a savings account, you lose out on the opportunity to earn higher returns.)2) How much importance should be given to the fact that the returns from an investment always carry a risk, regardless of potentially positive factors affecting a companies balance sheet?Simply put, risk is one of the most, if not (arguably) THE most, important factors in evaluating a stock to purchase into, or sell out of, your portfolio.Through careful analysis and/or just listening to the consensus opinions of stock researchers, it's plain to see how much risk a stock has relative to the market and stocks in its peer group.What is much harder to evaluate, and what can only be answered by you, is how much risk is appropriate for YOU. There are plenty of online resources to help you determine that for yourself. Or you can seek out the help of a qualified financial professional.. Again I'm sorry for being picky with grammar. Good Luck!!
Low risk investments?
Low risk investments generally corresponds with low level returns. Two examples of low risk investments would be investment-grade corporate bonds and uninsured municipal bonds.
What is considered a risk investment?
A risk investment typically refers to any investment that has a higher level of uncertainty or volatility, which may result in potentially higher returns or losses. Examples can include investing in stocks of startup companies, investing in commodities, or investing in emerging markets. It is important to note that risk investments may not be suitable for everyone and should be approached with caution.
High return on an investment is associated with?
higher risk. The higher the potential return, the higher the potential risk because there is a greater chance of losing money. High returns often come from investments with higher volatility and uncertainty, such as stocks or speculative assets, which carry greater risks compared to more conservative investments like bonds or savings accounts.
Is there such thing as a non lose no risk investment?
No monetary investment is risk free. All investments carry some degree of risk, even government issued debt. However some investments are LESS risky than others...or the PROBABILITY of loss is lower than others.
