How Risks And Rewards Related On The Stock Market

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How Risks and rewards are related in the stock market In the school, the three Rs were "readin ', 'ritin ', and ‘rithmetic." In the financial world, the three Rs, risk, reward, and relationship, stand for a fundamental principle of investing. Risk is directly related; in other words, a larger reward can only be obtained by increasing the exposure to risk. If you undertake a more risky investment, you will be entitled to a higher rate of reward. It is has always been better to be lucky rather than smart. You cannot rely on luck, so most of us must make do with smart. It is the best policy to assume that the reward on an investment will bear a direct relationship to its risk. It is necessary, before making any investment that you make some…show more content…
The objectives of an individual investor may be to accumulate funds to purchase a home or other major acquisitions, to have sufficient funds to be able to retire at a specified age, or to accumulate funds to pay for college tuition for children. An individual investor may engage the services of financial advisor/consultant in establishing investment objectives. Earlier in this paper, we reviewed the different types of institutional investors. We will also see that in general we can classify those in the first category as institutions with “liability-driven objectives” and those in the second category as institutions with “nonliability driven objectives.” Some institutions have a wide range of investment products that they offer investors, some of which are liability driven and others that they offer investors, some of which are liability driven and others that are nonliability driven. Once the investment objective is understood, it will then be possible to (1) establish a “benchmark” or “bogey” by which to evaluate the performance of the investment manager and (2) evaluate alternative investment objective. How to diversify One of the great arguments that fund managers use is that it is easier to diversify the portfolio with managed funds than it is for direct shares. The theory is that we should not hold shares in only one or two companies – we need to
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