Personal Money Management 101

Risk and Reward

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  • Different investments have different levels of risk and reward.
  • In investment terms risk means the degree of fluctuation - as well as the chance you might lose your money.
  • Generally:
    • the higher the rewards, the higher the risk.
    • the longer you hold an investment the lower the risk (eg in any one year there might be a 25% chance the stock market will fall, but the chance of a fall over 10 years is remote).
  • Know the risks and rewards for any investments you are considering.
  • Knowing your goals means you know the degree of risk you need to accept to fulfil them...
    • if you can meet your goals with a certain level of risk, why make riskier investments?
  • Know your own risk tolerance.
    • Don't make any investment you are not comfortable with.
  • Know also that there is a risk in non-investment,
    • money kept under the mattress may be stolen by robbers, or eaten away by inflation.

Discover your risk tolerance with:

Risk Quizzes from the Investor Education Fund

MSN Money's Risk Tolerance Quiz