Understand The Correlation Between Risk And Return On An Investment

897 Words 4 Pages
When making an investment rather into a business or stock market it comes with a risk. Risk is the possibility of losing money invested or the risk of that an investment may not keep up with the increase in prices. Every investment has a risk, the risk degree depends on what you invest in. “Risk can come from a range of sources depending on the type of investment you hold. For example, change in investments markets, economics, and social and political environments, can affect different investments in different ways and cause them to go up or down in value.”
The amount of money you may earn or lose on an investment is a return on an investment, it is shown as a percentage per annum.
To understand the correlation between risk and return on an investment is very important to an investor. Knowing how they work together will help the investor perception on the risk and how it can assist make investment decisions that best meet the company’s financial prerequisites and goals. Some investment are risker than others, bonds that
…show more content…
Bonds have the lowest risk, but that can be determined by the financial stability of the company that is issuing the bond. “Bonding into a relatively new company is far riskier than purchasing stock in a well-knon company that consistently performs well”, stated by (Harms). Typically stocks are more risky than bonds. Most investors believe that stocks are far more risky due to the fluctuations and short-term of the market. One of the main reasons that stocks are riskier is that there is no guaranteed return on

Related Documents