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Why Investing Without Understanding THIS Is Very Risky


Everything we do, every decision we make, all of it… involves some level of risk. It’s the natural order of things. From driving to work or walking across the street, to trying out the restaurant that looks a little iffy. The point is we can’t do away with it, but we also don’t have to hide from it either.

Imagine if you never ventured outside your home, crossed the street, or tried new foods due to the risk that comes along with it all. You could never.

As the famous quote says, “the biggest risk is taking no risk at all.”

This is especially true when it comes to investing. In order to benefit from this everyday aspect of life, like everything else we do day to day, we must learn to operate in harmony with risk.

Risk can be managed and even used to our advantage — we just have to reevaluate our relationship with it. To avoid risk altogether is to miss out on all the benefits of investing… and life for that matter, but learning to manage it will give you the confidence to take on any market.

For example, buying in the midst of a bear market is risky, as the market is in a downward trend. However, if one were to employ different strategies, it could work to their benefit. But before we can understand how to manage risk, we must first understand what it is.

With regard to investing, risk is defined as the chance that an outcome or investment’s actual gains will differ from an expected outcome or return. Risk includes the possibility of losing some or all of an original investment.

Since this risk is inherent in all financial markets and investment vehicles, investors seek some kind of compensation for taking such risks. For instance, junk bond investors accept higher dividend yields in return for taking on the extra risk of the company defaulting. On the other hand, some investors are willing to accept a smaller, more predictable return in exchange for a more stable investment with less risk. Anything to take the bite out of the risk associated with investing.

Some strategies are very “risk on” while others tend to be very risk averse — it all depends on the goals of the fund and the investor. Running a search for “risk” shows us the various strategies there are.

However, your risk tolerance will ultimately depend on your temperament as an investor and determine which strategies you use in order to match.

Risk can make investors act irrationally, so understanding it and how each investment has its own risk profile is extremely important for the longevity of your investment.

Once you have a general understanding of the risk inherent in investing, and what your risk tolerance is, we can then back at our strategies that allow us to invest according to your plan.

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Adam Mesh

Adam Mesh is the founder and CEO of WealthPop.com. Adam has extensive experience in the stock market, as well as being a options trading coach for many years. Our mission is to empower the average, everyday individual to become a better investor and trader.

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