Risk and reward go hand in hand in the stock market. It’s an inverse law which states that the higher the risk, the higher the potential reward. This is also where that adage “if it seems to good to be true, it is” comes into play. If someone is offering you a “risk free” 10% return on your money – run!
Be sure to invest only in things you understand, and know not only what the potential downside is but also what would cause the downside to become reality. Also, sticking to the plan will help eliminate some risk.
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I don’t think people realise that almost everything in life is risk/reward related. Anything from buying a house, to finding a job or buying a lottery ticket!!
We need to be educated on how to evaluate which option infront of us offers the best reward for the lowest risk. A little like comparing the best ‘lb for lb’ boxer. Whats the best ‘lb for lb’ reward vs risk out there?
Thanks for the post!
Speaking of risk/reward…I currently have about 50% of my 401K in a fixed account. After yesterday’s slide, I may be moving about 5% back into equities. I still think we may see a 7000 Dow again, but long-term prospects are bright.
@Forex,
You make a good point. Even getting out of bed in the morning has some risk related, eh?
@Ed,
I think 7000 is probably the bottom. The market has had just about everything thrown at it (except all out nuclear war) and seems to hover between 7k and a little over 8k.
I agree that long term prospects are good, but it may take 5 years or more to fully recover.