Is R-I-S-K Really a Four-Letter Word?
It is to some—and it is certainly something that most people try to avoid. But in the investment world, risk is impossible to avoid. In fact, risk and long-term rewards are generally related.
Low-risk investments—high-quality bond funds and other fixed-income alternatives—produce more annual income and are more stable, but have no real growth potential.
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High-risk investments—diversified stock holdings—can bounce around in value each year, but they offer the potential to grow in value in real, after-inflation terms over long time periods.
That’s why, for long-term investors, risk can actually be a good thing. Indeed, successful long-term investors understand that without the presence of risk, there is no potential for reward.
The trick is to get risk to work for you, and not against you.
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