Every single person that is interested in making an investment needs to analyze associated risk. Traditionally, risk is divided into three main categories: low, moderate and high. Many will tell you that investing becomes much simpler if you know how to analyze associated risks and it is hard to argue with this.
Investors have to be educated and learn all that is possible about the considered investments. Categorizing them properly based on risk level is something that is going to help much more than what initially envisioned. For instance, highly experienced investor Marc Leder highlights that most investors are interested in finding moderate risks for most of the investment budget and then pivot the rest in the other categories.
Low Risk Investments
The low risk investment is preferred by the conservative investor. It helps save money for the long term without having to deal with risks associated with other investment forms. The low risk investments bring in low yields but volatility is also much lower. The most common types of low investments used these days are certificate of deposits, some bonds and market funds.
If you want to be 100% sure that your money will remain secure and safe, the low risk investment is the route you want to be on. You do not get really high returns but you do get stability. If you cannot afford to lose your money but you do want to increase what you have, remember that the low risk investment options usually bring in a profit of around 1 to 5 percent per year.
Moderate Risk Investments
These are great for people interested in earning moderate yields over the long term. They are usually some stocks, mutual funds and bonds that do pay a good amount over a long term deal. Generally, risk is higher than when you just save money in a bank account but if you are interested in long term gains, these are the ones that normally make more money since growth is quite good.
Many of the investors that use the moderate risk investments use time frames like ten to 40 years in order to determine duration. The usual yield for a moderate risk investment is normally between 5 and 12 percent.
High Risk Investments
Last but not least, these are the investments that you are usually a little lucky if they bring in a huge return. Downturn is quite simple since the volatility of high risk investments is really extreme. There are so many cases in which you just do not get rich, you lose a lot of the investment budget. The high risk investments that are common include penny stocks, Forex trades, international stocks and more. Basically, profits can be way higher than 30% but risks are also the highest they could be.
Always pick the investment risk level that you are completely comfortable with. Investing the money that you cannot afford to lose in a high risk option is definitely not something you want to consider.