This week, let’s talk about investments and investment risk. In class with you today are individuals with various experience in investing – some may be seasoned professionals, while others may have very little experience. Either case is perfect okay because we all approach investing, risk, and return differently.
This week, let’s talk about investments and investment risk
Week 4 Discussion: Risk, Return and Diversification
This week, let’s talk about investments and investment risk.
In class with you today are individuals with various experience in
investing. Some may be season ed professionals, while others may
have very little experience. Either case is perfect okay because we
all approach investing, risk, and return differently.
When you invest your money, you have to consider a basic
risk-return tradeoff. The risk-return tradeoff (Links to an
external site.) is the balance between the desire for the lowest
possible risk and the highest possible returns. In general, low
levels of uncertainty (low risk) are associate with low potential
returns and high levels of uncertainty (high risk) are associated
with high potential returns (link (Links to an external
site.)).
Describe three factors that influence your evaluation of the
risk of an investment
What factors influence risk tolerance?
How does diversification risk?
What type of investor would invest in a high beta stock and a
low beta stock?
More details;
Diversification reduces risk by investing in investments that span different financial instruments, industries, and other categories.
Risk can be both undiversifiable or systemic, and diversifiable or unsystemic.
Investors may find balancing a diversified portfolio complicated and expensive, and it may come with lower rewards because the risk is mitigated.
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