Investing Can Be Risky

Investing money into the markets has a high degree of risk, and if you're going to take the risk, the amount of money you stand to gain needs to be big.

Sharper Insight. Smarter Investing. Manage Preferences MEASURING RISK You've probably heard that investing is a type of gambling. If that's true, then why should you invest your money in securities (which requires a lot of time and studying) rather than using that money to gamble (which for many people is a lot more fun)? As you may have guessed, it's because there is a huge difference in the level of risk between investing and, say, poker. Poker is an example of a zero-sum game. That means that if someone wins, someone else has to lose. If you add up all the wins and losses of all the hands, the sum will be zero. By contrast, securities investing is for the most part not a zero-sum game (though many will disagree on this matter). For example, let's say that you buy shares in a (fictitious) company called Floyd's Fiberglass USA Inc. If the company's stock price goes up, then you make money and so do all the other investors as does the Floyd's Fiberglass itself. Conversely, if Floyd's Fiberglass' stock price goes down, you suffer, the other investors suffer and Floyd's Fiberglass is going to be unhappy too. In this example, there's no one who's making money from Floyd's Fiberglass' misfortune. On the other hand, there are many types of securities investments that approach a zero-sum game, which is to say they are very risky. Futures and Options are examples of high-risk investments, but those products are not for the beginning investor and thus will not be discussed at length in this tutorial. There are a number of tools at your disposal that let you measure risk so you can make a reasonably confident guess as to whether a particular choice matches your risk tolerance. For example, you can examine a financial instrument's risk-reward ratio. This lesson will explain many such risk-measuring tools, read on. Stock Risks Standard deviation takes into account both systematic risk and unsystematic risk and is considered to be a measure of an investment's total risk. Read More 5 Ways To Measure Mutual Fund Risk These statistical measurements highlight how to mitigate risk and increase rewards. Read More Are Your ETFs Too Risky? Learn How to Evaluate Them Learn how to identify ETFs with greater risk and volatility. See why some investors include higher volatility ETFs in pursuit of greater returns. Read More Finding Great Value Stocks Learn to beat the market by understanding the true value of a stock and capitalizing on its price with this Investopedia Academy Course. Enroll Now. Bond Risks and Duration While more publicity is given to risk in the stock markets, there are a number of risks associated with investing in bonds. Read On Six Biggest Bond Risks Don't assume that you can't lose money in this market - you can. Find out how. Read On Corporate Bonds: An Introduction To Credit Risk Corporate bonds offer higher yields, but it's important to evaluate the extra risk involved before you buy. Read On Credit Risk Looks at the three types of credit risk. Learn how investors can gauge the riskiness of their bonds by using these three measures. Read On You are currently subscribed as: techandgio.cpex@blogger.com Unsubscribe  |  Manage Subscriptions Investopedia, LLC, A Division of IAC. 114 West 41st St, floor 8, New York NY 10036 Copyright © 2018, Investopedia, LLC. All Rights Reserved Follow Us: