Risk

Risk varies from one person to another person. The question is”How much Rsk are you willing to take”? Like rock climbers and sky divers, the market has varying amounts of risks.

The tradeoff of risk is the amount of returns you will get on your investments. If you don’nt like risk, you will return on investment will be low. The greater the risk the greater the return on investment. Of course, the greater the risk, the greater the opportunity for losses.

Of course, all investments are risky. During 2007 when banks were merging because of the risk of failure based on the risk of defaults in the loan market, if you kept your money in some banks as cash and the value of your account was greater than the FDIC insurance, you had risk of losses of being paid pennies on the dollar or perhaps nothing over $250,000.

Of course, the quote too “Too big too fail.” What does that mean. exactly. It simply means that big companies can’t be allowed to fail because of the risk to the economy. Companies that aren’t banks are being labeled as too big too fail (aka insurance companies).

If you don’t like risk, perhaps money markets, savings accounts, and bonds? But then again bonds may or may be too much risk for you. Money markets aren’t always a guarantee. There have been a few that that failed when the value of the account dropped below a $1. Bonds are similar, there is no guarantee that a company or government at some point default on their obligations.

Similarly, stocks go up and down all the time depending on company and economic news.

That’s why you diversification is important. Having your money in different investments. It’s to defuse some of the risk involved in only having your investments and money in on type of investment.