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High Returns are associated with High Investment Risk

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  THE recent crisis in one of the spot commodity exchanges in the country has once again brought into the limelight the situation that investors can face when they go out to invest.

Since there are a lot of options with respect to investing their money in specific areas and there are also a lot of expectation about returns, individuals have to be careful in making their investments otherwise there could be an additional risk element that arises in the entire process. Here is a look at some points to remember while any investment is being considered.

Return expectation:

One of the first things that the individual has to do is to ensure that the overall return expectations are muted.

One should not be looking for very high returns because in this case, the investment would also need to have risks of a similar nature. This can upset the risk-return balance and could force the investor to make choices that would not be in their best interests. A way in which they can actually go about the process is to look at their goals and consider investment options closely. This would eliminate a part of the risk that need not be present in the portfolio.

Surety:

There is no surety in the capital markets and hence, when there is a surety that is built into the return expectations then the investor has to be careful about the whole position. This is vital because a lot of people get lured by some schemes promising returns of as high as 12-14 per cent, which cannot be guaranteed. The investor has to understand that there is a risk element that comes along with the effort to get these returns, so if there is some amount that is being guaranteed, then this would not be true and there could be a higher element of risk present here.

Loss of capital:

There are situations wherein the investor would feel that the returns and the conditions that are being offered with the investment are too good to be true. It is always important to be alert about such conditions because there is a chance that the end result could be unexpected. It should not be that in the search for higher returns, the individual actually finds that their capital is under threat and that the loss of capital can actually be a real position that they will face. The whole idea is to ensure that the conditions related to the investment are known and hence, there is an idea of the entire risk that is being taken by the individual.


Research:

The best way to avoid any problems for the investor is to ensure that they have done their research well. This means looking at all the conditions related to the investment and then checking whether there is anything that seems out of order.


This is important because if there is any doubt with respect to the transaction or that the investor feels that that there is something that does not seem right then the best thing to do is to stay away from the entire transaction. This will ensure that the risk is minimised and in such cases it is the safety of the amount invested that is important and not the probable returns that might be earned. The research should always be done before the investment is made and not after so that proper action can be taken when required.

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