Without a thorough understanding of the risk, investment planning is almost impossible. In an investment, there always exists a return / risk tradeoff. This means that, greater the acceptance of the risk, greater is the potential return as the reward for the commitment of ones funds to an uncertain outcome. Generally, with the rise in the level of risks, the rate of return also needs to increase and vice versa.
In the world of investment, avoidance of some risk is possible through the act of investing in the risk free investments. Usually, short term maturity U.S. government bonds equate with risk free rates of returns. Investors can completely avoid risks associated with stock markets by deferring from investing in equity securities.
Risk Transfer:
Risk transfer is the other method of handling the risk. The concept of insurance is an easy to understand instance of risk transfer. In case, an individual has the risk of becoming severely ill, then the most advisable option is to go for health insurance. Health insurance is advisable for people having the risk of becoming severely ill. An insurance firm allows the transfer of risk of large medical bills to the individuals, in lieu of a fee known as an insurance premium.
The firm knows that statistically, if they have a large enough pool of insured people, they can easily pay the cost of the minority requiring extensive medical treatment and can have enough amounts for recording profits.
Apart from insurance, risk transfer also happens in investing. For instance, an individual can purchase an insured municipal bond or purchase a put option on their stock. This would permit that person to sell or put their stocks to someone at a set price, irrespective of how lower the prices drop. There are plenty of such instances of risk transfer in the field of investing.
Influence of Time on the Risk:
In terms of risk, investors need to have a thought on the time in their investment plans. The objectives pursued can require a policy statement pertaining to certain planning horizons.
For individual investors, it is for a year or two in the anticipation of down payment on the home purchase, or the lifetime planning for retirement. Generally, the longer the time horizon, the more is the incorporation of risk in the financial planning.
While analyzing the risk of ownership of fixed income securities such as bonds, time has a different effect. As compared to a short term, there is more risk associated with the long term holding of a bond.
By considering all these factors, short term investment is the best option for investors looking for quick and smart gains.
Strategies for Securing Low-Interest Personal Loans
In the quest for financial flexibility, personal loans have become a go-to resource for many, offering a lifeline during cash crunches or funding for major life events. However, the key to maximizing their benefits lies in securing loans with the lowest possible interest rates. High-interest loans can lead to a financial drain, so it's crucial to navigate the loan market with a keen eye. This article delves into practical strategies to help you secure personal loans with favorable rates, ensuring your wallet remains healthy.
What Exactly is a Penny Stock?
There are a ton of definitions out there for what exactly a penny stock is. The general accepted definition by both the public and the SEC is a stock priced under $5 a share. Usually a penny stock doesnt have much of a history behind it and the company as a whole is valued at $4 million dollars or less.
What is So Attractive About Penny Stocks?
Why in the World would someone invest in a stock that is only worth a small fraction of a dollar? Simple, the potential for return is great even if the company being invested in does not have a great product or service. Most companies that go public do have something of value but that does not necessarily mean great gains.
