Risk and reward is the classic investor’s balancing act.
The higher the risk you take, the higher returns you could receive, but the more chance you have of taking a loss.
With a low risk investment, you generally know the return you will receive right up front. A low risk investment would be a bank savings account – you know the return (the interest rate), but compared to riskier investments, like shares, it isn’t great.
Higher returns are only available with higher risk. The risks come in two types, volatility, which is the possibility that the value of your investment will go up and down, and performance, which is the possibility that the investment could be a flop and you lose all or part of your money. Or, the investment gives you a lower return than you expected or needed.
If you are considering high risk investments, you can balance your risks with other investments in lower risk areas, like short term deposits or cash and bonds.You can generally recognise high risk investments because the potential returns are also sky high (the promise of too-good-to-be-true returns is probably just that, not true.)