It’s Friday and time for our word of the week –the word this week is risk vs reward.
Okay, so it’s two or three words but they are so related that it’s tough to talk about one without taking the other one in consideration because they are essentially parts of the same whole. In other words, there is no reward without risk. In theory, the more risk you take the higher your potential reward or because you are taking a risk you could lose some or all of what you put in.
Risk is a part of every investment and there are no guarantees. Even if you decide to put your money under your mattress, there is the possibility that you could be robbed or that your house could burn down. So no matter what you do, it’s hard to avoid risk. The question is, is the risk worth the possible reward and can you live with the loss.
One way that you can mitigate risk is through the use of tools like diversification and insurance. Diversification allows you to limit your losses on one particular investment or when it comes to your income, having several income streams allows you to limit risk there and insurance can help you replace losses or recover more quickly. Risk is always a part of reward and you should be aware of all the parts of your life that it touches and look for ways to mitigate it.
Our word of the week is risk vs reward. At the end of the day, perhaps the biggest risk of all is doing nothing because then you don’t even have the possibility of a reward.
And that’s the minute for today. Want more connect with us on Twitter @yourmoneyminute
Thanks for listening and as always remember that minding your money really is the path to a richer life!