Best Strength

When investing you have to take into account risk. Risk is the possibility that you will incur loss. When it comes to investing, if you invest in a high risk security, it is very likely that you will lose money. When investing, you want to have the lowest possible risk with the highest possible return. You want to make the most money without having to worry about losing any money.

Let’s look at how different investments carry different amounts of risk. You want to invest $10,000 and have two different friends looking for money for their new businesses. The first friend has borrowed money from you before and always paid you back. You are pretty sure they’ll pay you back this time, there fore you have low risk.

Your other friend also needs $10,000 for this new idea they have. They are really excited because they feel they can earn a lot of money. Unfortunately, they almost never pay you back when they borrow yours or anyone else’s money. You don’t feel very well giving your money to them.

The first friend will most likely pay you back, but when they do, their only going to pay back with 8% interest. The second friend has a much better idea that you think will be a hit and he promises to give you half of the profits.

You are taking on greater risk with the second friend, but you’ll make a lot more money with them. The first friend won’t make you nearly as much money, but you will probably get your money. Is the money you might make worth the risk?

The difference between stocks and bonds is very similar. Put your money in a stock mutual fund that is high risk and you could make a lot of money, but you might not. Invest in a bond fund and you will probably make a meager return.

If you are close to retirement, you should focus more of your money in bond funds. This will ensure that you don’t lose the money you will need during retirement. Bonds are less risky and better for those closer to retiring or retired.

While your young, invest more in stocks. As you get older you can invest more and more in conservative bonds. This method will allow you to make the most without worrying about losing it.

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