You are watching: Which best describes why investing can be such a challenge?
There are no guaranteed investments.The market is totally unpredictable.
Answer: There are no guaranteed investments. This means that there are no risk-free investments but only low-risk and high-risk investments...
Which best describes why investing can be such a challenge?
Investment is an economic term with several related meanings such as saving, capital location, and postponement of consumption. The term occurs in business administration, finance and macroeconomics. The term investment includes the idea of using resources to achieve a benefit, be it economic, political, social or personal satisfaction, among others.
There are no investments without a minimum risk, as the results of the transactions made are unpredictable, there is always the possibility of failure and losing money. Therefore, there are no investments that guarantee a good return on the money brought in.
Low risk and high risk investments: an overview
Risk is essential in investing; no discussion of return or performance matters without at least a mention of the risk involved. The problem for new investors, however, is understanding where the risk really lies and what the differences are between low and high risk.
Given the fundamental risk involved in investing, many new investors assume this is a well-defined and quantifiable idea. Unfortunately it isn"t. As bizarre as it sounds, there is still no real agreement on what "risk" means or how it should be measured.
Scientists have often tried to use volatility as a proxy for risk. In a way, this makes perfect sense. Volatility is a measure of how much a given number can change over time. The wider the range of possibilities, the more likely it is that some of those possibilities will be negative. Better still, volatility is relatively easy to measure.
Unfortunately, volatility is wrong as a measure of risk. While it is true that a more volatile stock or bond exposes the owner to a wider range of possible outcomes, that does not necessarily affect the likelihood of such outcomes. In many ways, volatility is more like the turbulence experienced by a passenger on an airplane - uncomfortable, perhaps, but it has little to do with the likelihood of an accident.
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A better understanding of risk is the possibility or likelihood that an asset will experience permanent depreciation in value or perform below expectations. When an investor buys an asset and expects a 10% return, the likelihood that the return will be less than 10% is the risk of that investment. It also means that underperforming an index is not necessarily a risk. If an investor buys a company with the expectation that it will generate 7% and 8% returns, the fact that the S&P 500 returned 10% is largely irrelevant.