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Explain the concept of risk and reward

The elements that determine whether you achieve your investment goals are: Amount invested, length of time invested, rate of return or growth.
On the other hand, if an investor only takes a small risk, he or she is likely to earn a small reward.
If that person invests money in a less stable company, for example, a new technology firm, he or she assumes a great risk.
Most people think of investment risk in one way: How likely am I to lose money?
Measuring Portfolio Risks, one of the concepts used in risk and return calculations is standard deviation which measures the dispersion of actual returns around the expected return of an investment.As with beta, the higher the number, the higher the risk.The larger the Sharpe ratio, the greater the potential return.To combat birthday gift ideas for girlfriend age 25 this dangerous real cash gifting trend, the Federal Reserve dune co uk promo code (the central banking system of the.There is no guarantee, however, that the company will make money and cause the value of the stock to rise.Also from The Balance Team, the Balance is part of the Dotdash publishing family.If you are five years away from retirement, you probably dont want to be taking extraordinary risks with your nest egg, because you will have little time left to recover from a significant loss.In all drawings of risk pyramids, risks and rewards increase with each ascending tier.Advanced, in-depth mathematical calculations of risk are relatively new.Also, risk tolerance may change over time, so it's important to revisit the topic periodically.Asset Allocation, in simple terms, asset allocation refers to the balance between growth-oriented and income-oriented investments in a portfolio.It is generally true that the greater the risk a person takes, the greater the reward he or she will receive if the investment makes money.

An example of a conservative stock would be shares in a stable, long-standing, corporation, such as General Electric.
However, if the market dropped 10, this stock would likely drop only.5.
You can make investments that guarantee you wont lose money, but you will give up most of the opportunity to earn a return in exchange.When you calculate the effects of inflation on your investment and the taxes you pay on the earnings, your investment may return very little in real growth.This book created a field of study called game theory, which is now considered one of the more important areas of research in contemporary economics.The first factor is called the time horizon of the investment, which refers to the amount of time the investor wishes to have his or her money tied up in the investment.Game theory analyzes the complex process by which individuals, competing for scarce resources, attempt to maximize the benefits they receive and minimize the harm they experience.

An investment is the purchase of an asset for the purpose of earning money.
If two potential investments had the same expected return, the one with the lower standard deviation would be considered to have less potential risk.
Here are the basic steps to asset allocation: Choosing which asset classes to include (stocks, bonds, money market, real estate, precious metals, etc.).