Returns are very closely associated with risk, both type and level, which differ, depending on what you invest in. The most obvious and significant doomsday risk is the likelihood that you will lose all your money on a permanent basis. However, risk can also be associated with the concept of volatility or simply not achieving the initial financial goal. It is for this reason that it is imperative that you understand what you are buying and when and how it will earn you a return.
The value of an investment can also move up and down unpredictably as the asset prices change. Think about shares and bonds as their prices are affected by supply and demand. If there is a high demand for a particular share, then the price will increase, however, if there is a sudden large amount of shares being sold then the price will decrease.
This is known as investment volatility. Volatility can result in a permanent loss of money if you sell your asset for less than you bought it for. This can be perceived as a risk. However, if your investment goals are to be achieved over a long term, you may be able to recover from volatility based losses over time. Read more on investments here…
