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Red Sky at Morning

Essay by   •  September 19, 2011  •  Essay  •  433 Words (2 Pages)  •  1,555 Views

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Investing in the stock market can be a winning situation. There are organizations of investors that have access to information that individuals cannot see such as research reports, historical and market data for companies, and direct interaction with corporate executives. But, the investors within those face certain constraints that individuals do not. There are stocks that mutual fund managers would like to keep and hold but they have to raise the cash to compensate the persons holding the funds.

If you are an individual investor you can hold on to an investment for any period of time you prefer. As an example, if you invest in an index fund you're likely to make money if you hold on to it. This is because as an individual investor you are not competing against anyone and are making money when you want to. Of course, if you are going to make money you must set goal within reason for yourself. If you invest wisely with the stock investing you can win.

An increase in risk has a higher potential to have a higher return. Low risk has low returns, and high risk has high returns potentially for both. The risk return in other words would be, invested money can get higher returns only if you don't mind the possibility of losing the money. Because of these reasons you should be aware of the risk when choosing investments for your portfolio. If you think about it, the goal would be to find a balance and at least generate some profit.

If you diversify your investments then the risk can be reduced. It's kind of like "not putting your eggs in one basket." Having a diversified portfolio means that the concentration isn't in just one investment or category. Some investments will zig while others will zag. The effect would be lower risk in returns.

As individuals there are always types of risk that we are willing to accept. The choice would be ours and depend on the investment objective, the timescale of the investment, the accessibility needs and the personal attitude of risk that we would take. That is why as individuals one can choose between many investments such as: equities which have a high risk-high return, bonds which have a fixed income, certificate of deposits which are low risk-low return, mutual funds which include diversification and money management, and treasury bills and money market funds which are highly liquid and safe with low returns.

References

Daily Finance An AOL Money and Finance Site. Investing Basics. Retrieved August 3, 2011 from

http://www.dailyfinance.com/category/investing-basics/

Morgan Stanley Smith Barney. Investment Products. Retrieved August 3, 2011 from

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