You Thought Investing in Stocks Could Be Risky?
Many folks consider investing in the stock market as too risky for them. This is especially understandable as some folks lost over 50% of their net worth during the “Great Recession” if they decided to dump their portfolio during the bottom.
If you are among those that think stock market investing is risky, then you ain’t seen nothing yet!
Spectrum of Risk with Investments
There are many different assets in which one can invest their hard earned money. Typically, the more risk you take the more benefit you’d like to see in terms of a payout if your speculations are correct. Here’s a breakdown of typical investment activities from least risky to most risky:
- Bonds – This in an instrument which is a debt vehicle for a company to borrow money. If you invest in bonds, you are just getting paid back interest on the loan. This type of investment will typically have the lowest rate or return.
- Real Estate – Buying land, homes, etc. can be a little more risky than owning bonds. But, the upside is that you can expect a higher rate of return.
- Junk Bonds – Junk bonds are bonds from “riskier” companies which have a higher chance of going bankrupt. As a result, their loans pay out a higher rate of return that just normal bonds.
- Stocks – This type of investment is actually owning a small sliver of a company. If the company does well, then they will eventually return their profits to the shareholders through dividends. These can be more risky because if a company goes bankrupt, then the shareholders typically lose all of their investment. You can limit your risk when investing in stocks by investing in a market index fund. This is basically owning small slivers of hundreds of companies. The downside is that this also limits your upside as you’ll just do as well as the general market and no better.
- Gambling – You’ve heard the saying that “the house always wins”? If not, this means that over a long period of time, you will most certainly lose money when gambling. Most people do consider gambling as investing, but it really isn’t. It is pure speculation!
- Nigerian gambling – If gambling just isn’t risky enough for you, want not crank it all the way up to 11? Betting on Nigerian sports matches may be your cup of tea! If you’re going to go all out and dial your risk up, then you better make it count, right?
Final Thoughts
Now that you have a general idea of the risk spectrum of investments, you can decide what is the right amount of risk for you to take. Remember, taking a greater risk generally can yield a greater reward if you’re lucky. If you go to the extreme and try gambling with your money, be sure you quit if you ever find yourself ahead. And if you’re going to try Nigerian gambling, then make sure you only play with money you can afford to lose!
