We all try to avoid uncertainty as much as we can, and we always seek for guaranteed results and outcomes. This is especially true when it comes to investment. Well, why do people invest if they are not sure how it will end? People invest because it is one of the easiest ways of earning more money without physically working. However, investment is not a piece of cake and it does require effort and time. Investment is a long process that takes careful research, risk assessment and constant readjustments. In this article, I want to highlight the second point, risk assessment, since it sets investment apart from other forms of personal finance.  

With good investment comes the risk.

If you have decided to invest then mark these words right now - with good investment comes the risk. In this case “risk” refers to the chance of not getting the expected return, it is the possibility of losing some or all of the original investment. What about the risk-free investments you may think? There are no risk-free investments even the ones that are backed by governments still to some extent contain risk. In investment world riskwise there are two main types: low-risk and high-risk investments. If you are planning to invest then determining your risk tolerance should be in the top of your to do list. At first it seems very simple, the words are self explanatory low-risk means that the chances you will loss your money or get less than expected are quite low. Even if you loss, it will not have damaging effects on your pocket.  As for high-risk investments the risk is very high that your investment will not pay back and instead of profit you will gain debts. To speak the truth, the reality is not very far from what you assume but there are some nuances that are often neglected.  

Doubled investment in a relatively short time is every investor’s dream but you can’t expect such increase without facing some risks. Suppose your stockbroker tells you that there is 30% chance that your invested asset will be doubled in a year and 70% probability that you will lose everything.  On the other hand, there is another investment opportunity that gives 95% guarantee of 10% increase in a year. What should you? Cost-benefit analysis of course. With the second option everything is clear, it is a low-risk investment that will ensure the safety of your capital and you have a warrant of return. For the first option, however, you need to think carefully. When it comes to high-risk investments it is about the likelihood and the magnitude of bad outcomes. Consider the example of surgeries and earthquakes. You are more likely to undergo a surgery than to witness an earthquake. On contrary the risk of dying in an earthquake is higher than during a surgery. Under these circumstances it is very hard to make up your mind, so one of the things that can prevent you from this dilemma is building a well-planned investment portfolio.    

You might think that having more than 5 low-risk investments is the key to having two digit increase and sustainable income. The point is that the factor which causes low risk is the same and it affects all forms of low-risk investments. For instance investments in U.S. Treasury securities have significantly low risk rate but one Government decision can change the game. As a result your low-risk suddenly converts to high risk and you lose your assets. Similarly, you need to think about your time orientation. Remember that long term investments can guarantee expected returns and quick increase can be possible through high risk.

With this in mind, make sure your investment portfolio is diversified, think about your time expectations meaning long run gains or increase in a short time and of course do your research. It is always a good idea to consult with professionals of the field. There are people who study your case, providing investment newsletters, webinars, courses, and offer the best opportunity that will work for you.