An investment risk is a possibility of losing invested money or not getting the expected returns. All kind of investment carries some risk. So before making any investment, we should know that how much risk is carried by the investment.
Where there is lower risk there is lower refund, where there is high risk in investment also carries high refund. The investor’s risk is divided into two facets,
Must Read: TYPE OF RISK IN EQUITY MARKET
1 Risk-Taking Capacity
2 Risk Tolerance
An investor should determine the objectives behind his investments. To make money by investments requires time and money both. If you stay longer you will make more money, if you stay for the short time you will make money accordingly. Young and unmarried people have a high-risk capacity because they have a much time and no dependent and other responsibilities like children’s education and others. If you want money in nearby future then there is advised low-risk investment. In other words, we can say that when the money is needed by you, you cannot take any risk by investing money. If you have short money then your risk tolerance is low and when you have sufficient money then your risk tolerance is high. Generally, you can take more risk if you have more money. Risk-taking capacity is affected by the numbers of your dependents and other factors.
Must Read: WHAT IS RISK IN EQUITY MARKET?
Risk tolerance is the psychological element. Risk tolerance capacity denotes your reaction when you are in loss. There is the difference between risk taking capacity and risk tolerance. Risk tolerance is the reaction of investing loss and risk-taking capacity is the amount of risk that you can take. If at the time of negative response or in a loss if you stay cool then your risk tolerance is high.
Equity and related investments (equity mutual fund) carry high risk. This risk emerges from either by wrong selection of stock or by investing for a short time period. You can reduce this risk by selecting the right stock and investment for long period. Bank fixed deposits, government bonds; liquid or gilt funds are other class of investments that carry low risk and low return. Basically, these are the methods of preservation of money.
