Risk is the source of return Basics you should know

Basic relationship between risk and return

Conclusion: Return is compensation for risk

One word explanation

Risk = variation in results (uncertainty)

Detailed explanation

With investments, future prices cannot be predicted. Therefore, there is always a "swing range" in returns.

image

  • Small fluctuation → stable but low return
  • Big fluctuation → unstable but high return

points

  • Low risk = unsafe (lose inflation)
  • High risk = not dangerous (growth opportunity)

Principle 1: Risk cannot be reduced to zero

Bottom line: Manage, not avoid

reason

Risk exists with any asset.

Specific example

  • Cash: Inflation risk (decreased purchasing power)
  • Bonds: Interest rate fluctuation risk
  • Stocks: Price fluctuation risk

Practical points

  • Choose which risks to take
  • Reduce unconscious risks

Principle 2: Risk can be diversified

Conclusion: Just avoid concentration to stabilize

One word explanation

Variance = combining different price movements

Type of dispersion

  • Assets: stocks, bonds, cash
  • Region: Domestic/Overseas
  • Time: Lump sum vs accumulation

mini comparison

Investment methodriskFeatures
Concentrate on one pointexpensiveBig win or big loss
DiversifiedInvestmentmoderateEasy to stabilize

Principle 3: Risk changes over time

Conclusion: The longer the period, the more stable it is

reason

In the short term, the influence of chance is large, but In the long term, economic growth is more likely to be reflected.

practice

  • Long-term holding (5-20 years)
  • Regular savings

Common failure patterns

  • Jumping to “low risk and profitable”
  • Stop investing due to short-term losses
  • Becomes bullish only when it goes up

How to use it in practice (important)

Bottom line: Design according to your risk tolerance

step

  1. Secure living funds (6 months to 1 year)
  2. Decide on the amount you can invest
  3. distributed and distributed

Example (beginner)

  • Stock: 60%
  • Bond: 30%
  • Cash: 10%

Summary

  • Return is compensation for risk
  • Risk cannot be eliminated, but it can be reduced.
  • Basic strategy is long-term + diversification

action steps

  • ① Check your own acceptable risk
  • ② Start diversified investment
  • ③ Continuing over the long term