In this week’s #tfpforall we try and understand the very basic concepts of Wealth Management, starting with Risk and Return.
Everybody has a common expectation of getting more and more returns on their investment. This being essential, the layman often doesn’t take into consideration the risk being associated with the investment.
An investor, more often than not, is unaware about the concept of risk/ standard deviation.
This is one reason why they are afraid of the markets and and understand it as very volatile.
Risk which is essentially called standard deviation or volatility is nothing but the % by which the stock or the instrument you’re investing in is expected to fluctuate (either +ve or -ve). Risk essentially is the possibility of an outcome. The more extreme the range of outcomes, the higher is the risk and similarly, higher are the returns (or so as they say).
While all people might not be willing to take that amount risk, different asset classes provide different levels of risk.
Thus, the returns vary to compensate the investor for the risk one is willing to take.
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