What’s investment risk?

For most people, the primary source of income is the salary received from their employer. When you work and get paid for it, you can save part of your income, setting aside a solid amount over time. However, savings, when accumulated over a long period of time, are subject to some risks. For example, you may face unexpected expenses and will need to cover them using your savings. In some cases, you can use the loan app. This application allows you to choose the lender with the most favorable terms. But if you want your savings to work for you, consider investing. So, what is an investment, and what risks are associated with it?

What Is Investing?

Investing is a method of getting a profit from your savings. When you invest, you give up what you have right now to receive more significant benefits in the future. You should invest if you want to:

• increase your capital;
• ensure a reliable financial position in the future;
• implement purchasing and spending plans that require long-term savings;
• protect the accumulated capital from unforeseen situations.

The purpose of investing is to find a way of investing capital that would ensure minimal risk and the desired level of profitability. However, only banks can provide guarantees of return and profitability on invested capital. Therefore, unlike with a bank deposit, when you invest, it is you who is responsible for all the risks and results of the investment.

Investment Risks and Their Management

Investment risk is the likelihood of financial loss, and there are three primary risk types that an investor bears:

1. Market risk. At a certain point in time, the value of an investment may change not only up but also down.
2. Currency risk. Currency exchange rates may cause the value of an investment to decline.
3. Company risk. It is the risk of a decrease in the value of investments in case of an unfavorable situation for the issuing company.

When investing, you cannot avoid risks completely. Risk is always present, even if you take no action. However, you can manage risks following some principles:

• The measure of risk determines profitability. Before you start investing, determine the desired level of return on investment. The higher the level of expected return, the higher the risk measure. Choose investment instruments with a risk level that matches your financial goals.
• Define a comfortable level of risk. Each investor has a personal comfortable level of risk tolerance, which defines the selection of investment instruments.
• Diversify risks. Choose several options for investment at the same time.
• Choose reliable investment options. Reliability is the main criterion when choosing investment companies. Research information on the company you want to entrust your money to. Learn how it invests funds, what assets it has, etc. Pay attention to businesses that have been operating in the investment market for some time and have solid reputations.

You should make investment decisions thoughtfully and carefully. Neglecting basic rules can lead to loss of money. In contrast, compliance with reasonable rules allows you to reduce investment risks to a minimum and receive significant income.