Typically, the more risky an investment the better the return (or reward). Conversely, less investment risk results in less reward. For example, there is no risk in keeping money at home under your pillow, but the reward (or return earned) is absolutely zero. No one will pay you interest on money unless you lend it to them. Now assume you invest the same money under your pillow in a United States bank. While the bank is one of the least risky places to invest, when you place your money in the banker’s hand, it is no longer in your possession. While ever so slight, this represents a risk to you, and the bank therefore pays a small annual percentage to you for loaning them your money.
Every investment involves risk. So the real question to ask is, “how much are you willing to risk when you make an investment”? First, never buy stocks risking money you need to live on.
Risk/Reward Ratio
Position Sizing