The R&R of Investments (Risk and Return):
I am pretty sure that you'd like to make a fortune in the markets.
I mean, who wouldn't want to?
Then the first thing you need to understand, before you pledge your capitals even to a portfolio; that it is important to comprehend a return on any investment comes with a certain degree of risk.
In investing, risk is the chance you take that the returns on a particular investment may vary.
That's another way of saying that there are uncertainties when you're investing; and the higher the uncertainty, the higher the risk is.
Whatever that you decide to do with your savings and investments; you will always face some risk.
Investing in stocks, bonds, or mutual funds carries risks of varying degrees.
While risk in your portfolio may be inevitable, however it is controllable.
The puzzle of controlling risk and return is that you need to capitalize on the returns and curtail the risk. When you do this, you guarantee that you'll make enough on your investments, with an acceptable amount of risk.
So, what institutes tolerable risk?
While it is different for everyone, a good rule of thumb followed by many investors is that you shouldn't wake up in the middle of the night worrying about your portfolio.
If your investments are causing you too much concern, it's time to reassess how you're investing, and bail out of those insecurities that are giving you insomnia in favor of investments that are a little less painful.
When you find your own comfort zone, you'll know the amount of risk you are willing to tolerate in order to achieve your financial goals. (Personal risk tolerance/degree of risk that you’re able to accept in terms of losses)
When it comes to your long-standing financial future though, the major risk of all may simply be to do nothing.
If you don't invest for retirement, or for the college education of your children, or to help meet your personal financial goals, then you're most likely guaranteed a future of just scraping by.
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