The Motley Fool

Risk-Free Returns. How Realistic is this For Investors?

Many investors out there are continually searching for the “Holy Grail” of investing. This could come either in the form of a specific process that ensures one always makes money or a company to invest in which is guaranteed to do well. We regularly read of such claims in newspapers or financial media too – experts who tout their superior powers of perception and forecasting to be able to pick stocks which will make money consistently. There are also numerous “sure-win” investment secrets which investors, unsurprisingly, need to pay for in order to be privy to.

But does a risk-free investment even exist? We take a look at risk as a concept and how you can manage it when investing.

Risk when investing

Even if an investor is extremely confident in the business prospects of a company, something could always go wrong. Risk is therefore defined as the probability that something could go wrong, even when an investor has ensured that all bases are covered. Those suffering from over-confidence tend to believe that as long as they do their basic due diligence, the risks will be adequately covered.

Risk management is crucial

Risk, therefore, exists in all investments but it’s simply a matter of the level and type of risk involved. Investors need to position their portfolio in order to minimise risk, rather than to maximise returns. It’s not realistic at all to expect a risk-free investment but by understanding, managing and controlling risk, an investor will then be in a position to enjoy superior performance over time.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.