Risk in the investment market is measured by a statistic called variance. Essentially, variance is a measure of the dispersion of returns over time. The higher the variance, the more volatile the return stream is and the higher your risk of realizing a big gain or a big loss. There are at least a couple of ways to think about this. First, if your investment advisor offers you a high return, you will know that there is higher risk in this investment. The probability of being able to deliver that return is lower than for a lower return investment. However, the probability of being able to deliver the high return increases with the time you can leave the money invested.
Second, if you understand the risk and are comfortable with it, you have the opportunity to make a lot more money. In my next blog I'll give you some benchmarks you can use to to see if the returns you are being promised are high or low.
Nothing ventured, nothing gained. If you aren't incurring periodic loses on your investments, then you aren't risking enough capital. Don't be a pussy! Maintain your self-respect, if not your money.
Posted by: Bob Hansell | March 22, 2006 8:31 AM | Permalink to Comment