This week, let’s talk about investments and investment risk

This week, let’s talk about investments and investment risk. In class with you today are individuals with various experience in investing – some may be seasoned professionals, while others may have very little experience. Either case is perfect okay because we all approach investing, risk, and return differently.

This week, let’s talk about investments and investment risk

Week 4 Discussion: Risk, Return and Diversification
This week, let’s talk about investments and investment risk. In class with you today are individuals with various experience in investing. Some may be season ed professionals, while others may have very little experience. Either case is perfect okay because we all approach investing, risk, and return differently.
When you invest your money, you have to consider a basic risk-return tradeoff. The risk-return tradeoff (Links to an external site.) is the balance between the desire for the lowest possible risk and the highest possible returns. In general, low levels of uncertainty (low risk) are associate with low potential returns and high levels of uncertainty (high risk) are associated with high potential returns (link (Links to an external site.)).

Describe three factors that influence your evaluation of the risk of an investment
What factors influence risk tolerance?
How does diversification positively and negatively affect risk?
What type of investor would invest in a high beta stock and a low beta stock?

More details;

The risk-return relationship. Generally, the higher the potential return of an investment, the higher the risk. There is no guarantee that you will actually get a higher return by accepting more risk. Diversification enables you to reduce the risk of your portfolio without sacrificing potential returns.

Diversification reduces risk by investing in investments that span different financial instruments, industries, and other categories.

Risk can be both undiversifiable or systemic, and diversifiable or unsystemic.

Investors may find balancing a diversified portfolio complicated and expensive, and it may come with lower rewards because the risk is mitigated.