Just as the saying goes, we live in a risky world. Almost everything we do involves some degree of risk. Generally, to invest is to risk… since one is not certain about the outcome of the investment.
According to Wikipedia, investment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it.
Today, many don’t like to hear the word investment merely because it involves risks. Apparently, to invest is to risk; but we should not because of the risk avoid investing.
It will be much better for one to learn how to manage risks associated with investment rather than avoiding investing totally. A good investor should learn how to manage the various risks associated with every investment. It will not be wise for one to avoid investing merely because of the risks associated with investment.
A potential investor should also know that the risks associated with every investment varies. For instance the risk associated with Stock Investment or Stock Trading is not the same with that associated with forex trading. Likewise, the risk associated with real estate investment also defers from the risk associated with transport business. Every business we do, no matter how small has its own risk.
What is the major fear an investor faces? The major fright investors face is the fear of losing money. Each time you give investment a second thought, the next thing that may come to your mind is that you may be losing your money.
Also, if the assets you invest in are held in another currency there is a risk that currency movements alone may affect the value. This is called currency risk. To venture is to risk and it is very difficult for one to do without risk in life, since every thing in life is all about risk… even life its self is quite very risky as well.
Finally, to invest is to risk, look for a good financial adviser before embarking on any investment, or read more on how to avoid some mistakes in the investments through the author’s links below:-
If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securities. If you think logically about this approach for but a moment, you will recognize how truly foolish it is.
A stocks earnings yield is the inverse of its PE ratio. So, a stock with a PE ratio of 25 has an earnings yield of 4%, while a stock with a PE ratio of 8 has an earnings yield of 12.5%. In this way, a low PE stock is comparable to a high yield bond.
Now, if these low PE stocks had very unstable earnings or carried a great deal of debt, the spread between the long bond yield and the earnings yield of these stocks might be justified. However, many low PE stocks actually have more stable earnings than their high multiple kin. Some do employ a great deal of debt. Still, within recent memory, one could find a stock with an earnings yield of 8 12%, a dividend yield of 3- 5%, and literally no debt, despite some of the lowest bond yields in half a century. This situation could only come about if investors shopped for their bonds without also considering stocks. This makes about as much sense as shopping for a van without also considering a car or truck.
All investments are ultimately cash to cash operations. As such, they should be judged by a single measure: the discounted value of their future cash flows. For this reason, a top down approach to investing is nonsensical. Starting your search by first deciding upon the form of security or the industry is like a general manager deciding upon a left handed or right handed pitcher before evaluating each individual player. In both cases, the choice is not merely hasty; its false. Even if pitching left handed is inherently more effective, the general manager is not comparing apples and oranges; hes comparing pitchers. Whatever inherent advantage or disadvantage exists in a pitchers handedness can be reduced to an ultimate value (e.g., run value). For this reason, a pitchers handedness is merely one factor (among many) to be considered, not a binding choice to be made. The same is true of the form of security. It is neither more necessary nor more logical for an investor to prefer all bonds over all stocks (or all retailers over all banks) than it is for a general manager to prefer all lefties over all righties. You neednt determine whether stocks or bonds are attractive; you need only determine whether a particular stock or bond is attractive. Likewise, you neednt determine whether the market is undervalued or overvalued; you need only determine that a particular stock is undervalued. If youre convinced it is, buy it the market be damned!
Clearly, the most prudent approach to investing is to evaluate each individual security in relation to all others, and only to consider the form of security insofar as it affects each individual evaluation. A top down approach to investing is an unnecessary hindrance. Some very smart investors have imposed it upon themselves and overcome it; but, there is no need for you to do the same.