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Understanding Investment Risk and Reward

Posted on the 10 February 2018 by Smallivy

Understanding Investment Risk and RewardThe Small Investor

An important concept to
understand in investing is risk and return, often expressed as a
risk/reward ratio.  The basic idea is that the risk/reward ratio
should be about the same for any investment.  If an investor is
taking more risk, he should expect to have the chance to get a
greater return on his investment.

For example, a bank
account is a fairly risk-free investment.  Because losses in banks is
very rare — even rarer since the Government began insuring bank
accounts and requiring that banks hold a certain amount of capital in
reserve — the amount of return from a bank account is fairly low.
Bank investors do not expect a large return from their bank accounts
as long as they can reasonably expect to be able to get the money
back when they need it.  The return is actually a little worse than
inflation in fact, so wise…

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