Many people have called the risk/return tradeoff the equivalent of financial skydiving (Investopedia, 2006). Many people can handle it without a second thought, without batting an eye, while many others are terrified to even step up the financial ladder (Investopedia, 2006). Our job at ABC Investment Firm is to be the tandum professional jumper, attached to your back on the ride down to guide you into making educated risks.
Obviously the lower risk investments are associated with lower potential returns, whereas the higher risks are associated with the higher potential returns. The risk/return tradeoff mentioned in the previous article refers to the balance between the desire for the lowest possible risk with the highest possible return (Investopedia, 2006). This is where we come in.
There are always risks that are out of our control. These are called systemetic risks, and include currency risk, political risk, recession risk, and market risk. However, the risks that we can control are what we focus on at ABC Investment Firm. We will help you analyze and strategize to take the lowest amount of risk that will yield the most amount of return.
Another important way to minimize your risk is to diversify your investments. This means that instead of putting all your investment in one industry, diversifying and investing in multiple industries lower the risk. For example, if there are only two companies you can invest in, and one manufactures sunscreen while the other makes umbrellas, and you put all your money in the umbrella company. I’m sure this company does very well in the rainy parts of the year. However, the sunny seasons will leave you with poor performance. However, splitting your investment 50/50 between these two companies will provide you with a ...