Each investment involves accepting risks because there are no returns without taking risks. The only low-risk investment is in government securities such as treasury bonds. Yet, this should not be misinterpreted to mean that investment in government assets always guarantees a return. Yet, taking on too much risk does not guarantee huge proportional profits. Some risk results in no rewards; consequently, the incalculable levels of risk that characterize investment must be considered (Li & Mei, 2013). Taking up a lot of risks results in higher investor returns because the majority of the gains are affected by various factors that are unrelated to hazards.
Performance risk is one element that is not addressed in the video. The risk of failure adversely affects investment. If a person owns a company then the company closes down, the owner is therefore declared bankrupt hence the performance risks (Li & Mei, 2013). If overall returns become weak, the company will be unable to meet its debts obligation. The other factor is the lawful risk that is a government-induced factor. Change in investments taxes laws may lead an investment into unanticipated expenses, therefore, making the company unable to pay debts. An economic risk is another factor which is likely to expose a business to a financial crisis. Weak economy decreases preference and demand for commodities, thus creating a financial crisis.
I once took a risk by venturing into boutique business with my savings of $720. After some time I realized that the returns from the investment were minimal due to negative economic factors. In the following year, I opted to invest in the government securities, which are exposed to few risks. I then decided to be capitalizing in government security in the subsequent year.
Reference
Li, J. C., & Mei, D. C. (2013). The risks and returns on stock investment in a financial market. Physics Letters A, 377(9), 663-670.
