Risk and Return in Investment: 4 Things You Need To Know

Business: No risk, no reward!

Without risk, there is no reward. Business is a risk. While it is true that some businesses are high risk, some moderately risky and some very low risk, it is impossible to eliminate risk when conducting business. This is because there are so many factors and variables at play that cannot always be predicted or controlled.

Regardless of the type of investment, a true businessman knows that there is as much a possibility for loss as there is for profit. But he is also aware that there are certain things and information that he should have that will enable him to carefully consider a venture and determine whether it is a good investment or not. This could mean the difference between profit and loss.

Four things to know about risk and returns when investing or running a business

1. Be informed

This cannot be emphasised enough. There is nothing worse than blindly investing in a business. There is an off chance that you get lucky and get good returns, but more often than not, luck runs out, and you can lose all your money. While successful businesspeople do take risks and make a profit, they take calculated risks, they take action based on meticulously harvested information, and this greatly reduces their chances of loss. The same should apply when you are considering investing.

Do your homework. Learn about the business you are considering sinking money into. Learn about the market and do comparative investment analysis. This will give you a good picture of how that industry works and further fortify you against making extremely poor investment choices. Lastly, seek professional advice and model your business plans to those who have a track record of success.

2. Draft a financial plan and have an insurance plan

The importance of a financial plan when venturing into investment provides you with a financial roadmap that makes your journey much easier and cuts down your chances of loss. Define your goals and figure out your risk tolerance. Insuring investments and businesses also indemnifies you against loss, liabilities, damages or accidents.

3. Engage in multiple investments

The rule “do not put all your eggs in one basket” applies here. Successful business people know that multiple investments improve the odds of a better return on investment and lower the risk of loss. Market conditions cause various assets to fluctuate in value at different times. This affords investors the opportunity to make a profit when the market for a particular investment is good. Diversifying your investment portfolio significantly reduces losses and enables you to counteract a poor investment with a good one.

4. Accept losses when they occur

As earlier stated, risk cannot be eliminated from investment, and even the most seasoned entrepreneurs will experience loss at different times and levels in their careers. In business, you win some, you lose some. When you take a risk and incur a loss, accept it. It is not a complete failure. Yes, you lose money, but you gain more knowledge. It provides you an opportunity to learn how not to go about a particular business, you discover new factors that could taint the integrity of a future investment, and you are better for it.

Conclusion

Risk is always a part of business and investment, but it is not always a bad thing. An adequate understanding of risk and how to avoid and even use it can make all the difference in whether you make a profit or not. The goal of business is to make a good return on investment and these four points are basic knowledge anyone who intends to become an investor on any level must know.

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About the Author: Rounak

Web Developer ~ Internet Marketer ~ Wantrepreneur

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