What Makes an Investment Risky?

Posted by Grace under Investing on October 29, 2014

Know what makes an investment risky and find out the things why an investment can considered as low risk or high risks type.

Want to know what makes an investment risky? Due to lot of subscribers of InvestmentTotal, I didn’t find time to answer all queries and questions. I just choose topic related to this blog – investment. One of my reader ask me “what makes an investment risky?”. Let us talk today, the risky investments, types of risks and some tips about risk management.


Related: Investments that Can Give Highest Return

In my previous topic, I discussed the different types of investments and the definition and meaning of investment. Please read those articles before proceeding in this topic.

Warren Buffett, the 3rd most wealthiest man in the world and the CEO of Berkshire Hathaway once said in his statement, “Risk is a part of God’s game, alike for men and nations.” This means, there is everywhere since you were born.

What Makes an Investment Risky?

When you are on your mothers womb, the risk are already there. Health risk to a mother and the baby, there is a chance that you will be born alive or not.

Going back to the topic, I just assume you already understand that there is a “risk” everywhere. If life has risk, then anything that use for the survival of life has also risk and one of these things is “money”.

 What Makes an Investment Risky

Image Credit: Ged Carroll via Flickr CC 2.0 ~ RISK

Let us talk about the risky and non-risky investments. They say bonds are less risky than stocks and a combination of bonds and stocks are also less risky than pure stocks. It means, there is a low risk investments, medium/moderate risk, and high risk. If you believe in “high risk is always equal to high return”, you are on your way to successful investing.

Would you take low risk or high risk? But what makes an investment risky? Investments are risky due to following reasons, value risk (might increase or decrease), business risk, industry risk, liquidity risk, market risk, social, global economic and political risk.

If you are investing in the real estate, there is a chance that you can’t get the return on your investments because a property can’t easily converted into cash. if you are investing in the stock market, the price of your chosen stocks might decrease its value. If you are investing in a forex exchange, the forex exchange rate migth eventually fall down.

Know What You Are Doing

I hope this simple explanation is enough to answer the question “what makes an investment risky?”. Now, the question is to how to manage risk? By simply acknowledging the risk, analyzing the risk involved in your investing activities. If you are investing in the stock market, make sure you analyze the companies, how the companies are doing in the business and industry, how’s their staffs, how’s its balance sheet, how’s its stability, not just the stock price valuation. That means, if you already analyzed and studied the company, you can easily decide whether to buy its stock or not.

Also Read: Warren Buffett Investment Tips

High Risk, Great Rewards

In investing, there is a possibility that you can get rich fast, however, there is also a big chance to lose your investment capital fast. It is up to you if you want low risk investment or high risk, believe me, high risk will give you great rewards, but, be equipped with knowledge and skills first before investing in high risky investments.

Investing is risky if you don’t know what you are doing. If you know and confident enough on your investing activities, you don’t have to be afraid to risk.

What Makes an Investment Risky? Points of View of Other Investors:

  • “When ur investment has potential larger returns,dat makes it too risky”.-She-anne Cerbito Pangandoyon
  • “Risk is a matter of perception. In anything, the more you know, the less riskier it becomes.Why? Because you are in a position to make better decisions.”- Manuel Boyet Enicola 
  • “The uneducated investor himself makes an investment risky. just like what mr. enicola said, it is a subjective topic. by practicing due diligence, unnecessary risks are taken out.
  • disclaimer: im a fan of graham and buffett haha.”- Hero Salvador
  • “Actually investing is not risky… Just like a gun, it is neutral it becomes good or bad depending on the person using it.. With investment, it is the same.. it is the investor who is risky because of his emotion towards the investment.” – Mon Lao
  • Pol Espanola said “Investments are risk-neutral. It’s the investor’s behavior that makes them risky.” – Freedom Father

Investing Tips for Today: Do not invest in high risk because of high promising returns, invest in any investment vehicle according to your needs, and make sure you are investing to meet your financial goal.

Warning: Should you take FREE Investment Advice? I think no! Or it depends if you want just want to.

Now you know what makes an investment risky! Keep on visiting InvestmentTotal, for more guides and topics about personal finance. Like InvestmentTotal Facebook page, share this article to social networking sites like Facebook, Twitter and Google+. Thank you.

Money and Quote Saying for the Day;

If a business does well, the stock eventually follows. – Warren Buffett

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