Balancing Risk and Return

When you invest, you’re looking for a stronger return than saving provides. But the potential for a greater return goes hand in hand with taking more risk. In fact, the larger the potential return, the greater the risk. Just to clarify:

• Return is what you get back in relation to the amount you invest.
• Risk is another way of saying “uncertainty.”

One investment risk you face is the possibility of losing money, which happens if an investment drops significantly in value and you sell at a loss. Another risk is not realizing a strong enough return to meet your goals. This happens if an investment doesn’t gain as much as you anticipated.

The good news is that the more you learn about the way investments work, the better you’ll be at estimating the level of risk you’re taking with each investment you make — though there’s no guarantee that the past performance of any individual investment will be equalled or surpassed in the future.

 

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