Syndicate
Investment Risks and Rewards
The relation risk / reward is a new term applied to an old concept. Without consciously thinking, many people are convinced that to obtain profits out of certain investments, they must be willing to assume some risks.
The relation risk / reward is an important component in the evaluation of the risk. By risk we mean the uncertainty of the revenues. An investment that offers a high certainty of probability of obtaining revenues is considered as a low risk, the uncertainty depends on a considerable variety of factors. Great part of them related to the financial fundaments of the investment. You buy shares of many companies with the hope of obtaining benefits in the future, but what you cannot buy is the absolute certainty.
The relation risk / reward compares the level of risk that an individual investor is willing or is able to assume with the dimension of reward that he expects to obtain from his investment.
Lets take the case of the investor Mary Richards, who pretends to profit 200% of her money’s worth in one year. Mary is a psychologically well-disposed person that is willing to take high risks. Logically, investments that can generate such large profits in short term (one year) will have to speculate very much; possibly, they will be low price penny stock shares issued by recently created societies or securities issued by societies that are near bankruptcy or have already gone bankrupt, with the object of obtaining such large profits. Mary must be willing to assume the possibility of loosing all the money she invests. Investors that are not willing to take any risks usually put their money in savings accounts, in Treasury notes and in similar financial products. Most of the people are in the middle between these two extremes and accepts in their investments a certain degree of risk in change of a moderate return.
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