What is Risk and Return | General rules to be followed when Investing

Risk and Return

Keeping in mind your current and future needs, you have to decide on how much risk to take. There exists direct relationship between risk and return i.e, investments with high returns involves higher risk too.

Risk

Risk can take many forms. The common one is that of market risk, wherein market price fluctuates.

Return

As we know more risk comes with higher expected return. While stocks could have the best market risk, they conjointly give with higher market come. Stocks returns have organized between ten and St Martin’s Day since the first a part of this century Corporate bonds on other hand have averaged between 6 and 7% and government bonds closer to 5%. As we know lower risk is with low returns. One should balance amount of risk to tolerate with amount of return you expect.


General rules to be followed when Investing

  • Returns achieved in the past by an investment can only ever be a guide for the future.

  • If possible, seek professional and independent advice.

  • Diversify your investments across asset classes, industries, fund managers and countries.

  • Re- invest your interest and dividend income. Let compounding growth work for you.

  • The higher the return on investment, the greater the risk.

  • Understand the tax implications of investment, but don’t let tax concerns drive your investment decisions. Government close loopholes as quickly as we find them.

  • Invest in assets which generate some form of income, such as shares, property, cash and fixed interest. And, correspondingly, don’t invest in assests which don’t invest in assets which don’t generate income, such as personalized number plates and art.

  • Ignore volatility over the short term. For example, shares will move up and down every day. Ignore these movements; you’re only concerned with the long- termed trend.

  • When you compare the returns of different investment options, ensure you’re comparing like with like. For example, are the stated returns calculated after fees and inflation?

  • Be patient because successful investing is a long- term venture.

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