December 17, 2020

Investing Principle #8: Risk is the Price of Admission to Investing

Where there is no risk, there is little reward.

This is why it is so hard to make money on a sure thing.

If stock markets always rewarded investors or never made anyone money, they would quickly collapse. Only a market that has both up and down periods offers the potential for long-term returns. While we can’t predict when these ups and downs will occur, we do know in general, that markets rise and fall for rational reasons, strong or weak economies, geopolitical issues, new technologies, etc.

One of your major decisions as an investor is how much risk you can tolerate. This in turn determines how much more potential return you might expect.

Investing in stocks is investing in thousands of companies that have created something the economy finds valuable. Those companies that survive and thrive are innovating over time, developing or acquiring the expertise to bring newer and better products or services to the market.

Not every company will survive and markets as a whole will continue to go up and down. But if you can handle the risk, you will probably be rewarded over the long term for staying the course.