Used College Books


Tuesday, October 31, 2006

What’s Risk?

Most people understand that a risk is something that is associated with the amount of safety that something has. That is, if something is risky, you have a good chance of failing at it. Now, that is not to say that all investing is risky. All investing does have some risk to it, though.

Some stocks are safer than others because there is less likely to be that opportunity for them to implode. Of course, it would be wonderful if we could all invest in safer stocks and count on the money coming in each and every month. Yet, the safer a stock is, the less likely it is to have that huge windfall or to gain significantly.

That’s because of the company’s strategies. What makes a stock safer is the fact that is it less volatile. There is not enough opportunity for that stock to lose huge amounts of ground. With less ability to do that, it is also less likely to gain substantial ground either.

Therefore, it is less likely to move up or down drastically when you are investing in it. The bottom line is that the safer a stock is, the less likely it is to offer you any risk but the less likely it is to offer huge gains at the same time.

On the flip side, there is no doubt that a risky stock is just that, risky. By saying that it is risky, that means that it is more likely that the stock could lose ground. That is often because the company may not be as stable but has good potential. It may be that the way that the funds for that company are used is more potentially devastating.

Yet, even with this risk again comes the fact that with more risk there is more opportunity to gain as well. Because there is such a risk, there is also such an opportunity for substantial growth in the stock.

Therefore, those that are investing in these stocks do need to keep in mind that there is a good deal of a chance that they could lose whatever they put into them. On the flip side, though, the risk could pay off with a substantial amount of benefitin the long run as well.