By John Sage Melbourne
Misunderstanding No 1: the higher the return the higher the risk
The idea that the higher the return the higher the risk is normally a misconception.
The rule is: “There is not always any link in between risk and return and there may be!”
Simply put,it is quite feasible to go into an investment that provides a very low price of return,and has long shot of high return whatsoever,which likewise happens to present a very high level or riskIt is likewise just as feasible to locate an superb investment with a high chance to supplying an impressive return that does not offer a severe risk to resources.
So many commentators have actually claimed for as long that “the higher the risk the higher the return” that it is merely taken as an axiom when there is perhaps little or no true to this assertion in a great numerous circumstances.
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Misunderstanding no 2: Spread your investments/ lower your risk
There is an additional relevant misconception,that an sufficient method to respond to risk is to merely “spread your risk”. One more method of stating this is “don’t put all your eggs in one basket”. This has been repeated a lot of times that it is hardly ever if ever questioned.
Nevertheless it is just as feasible to put your mutual fund in many different investments all of which perform poorly for extended periods of time. Several investors have uncover this is definitely the situation with the modern funds monitoring industry,with high annual costs and a lot of fund managers merely each trying to match the industry index.
Spreading your investments does not always result in a decrease of risk.
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