Are you willing to take risks?
In our “Basics” section we have seen that every investment bears a certain level of risk. While some risks can be limited by making certain investment choices, most other investment risks cannot be avoided.
First of all, there is a risk that the money you invest decreases, if future inflation is higher than the return you earn on your investment.
There is also a risk that the bank you entrust your money to gets into trouble and is not able to reimburse the money you have deposited. Another risk is that you may lose the money you have invested if the company you have invested in goes out of business.
These are just some risks associated with investment and the chance that they happen may be high or low, but they are always present and should be considered before you invest.
It is important to understand that in order to attract investors, projects and investments with higher risks must offer the possibility of achieving higher financial rewards. In other words, this means that investors seeking higher financial rewards have to accept higher financial risks.
Before taking any investment decision, you should therefore ask yourself if you are ready to accept certain risks in order to have the possibility of a higher return.
The most important question you should ask yourself is: Can I afford to lose some, or even the entire amount of the money I invest if my investment isn’t able to offer the financial rewards I expect?
In order to answer this question you have to carefully analyse your personal and financial situation. In other words, you have to define your investor profile. When you go to your bank or other professional adviser for investment advice, that’s exactly what the adviser will help you do.