Wednesday, 20 June 2012

Returns are the reward you receive for taking investment risk.

While most evident when markets are falling, threat is ever-present. However, it’s not something you want to avoid totally because without risk, you won’t be able to grow your wealth sufficiently over the long term to achieve your “financial goals”. And if returns are the reward you receive for taking investment risk, logic follows that the higher long-term returns usually come from investments with more risk (eg stocks).

Over the long term, cash/term deposits are really risky.  The buying power of these decline due to inflation.
The dictum, you need to take higher risks to get higher returns is generally true.  However, the smarter investors also realise there are occasions when an investment is available at low risk with a potential of high return, especially when a good company is being sold at low prices not due to any fundamental reasons.

No comments: