Tuesday, December 7, 2010

High Risk, High Return

You have heard about the subject that high risk will lead to higher return. This you have become familiar with in the course of buying stock which is a highly risky venture, but the returns are also very high. If you have ever invested in 401K, you may have had a combination of stock and bonds, if you want a high return you go with stocks and if you want low return, you stick with bonds and savings account. Same goes with gambling, you are playing a game of chance, the risk is that you will keep on losing money, but on the upside you may hit a jackpot while spending little of your money. It is just that you have to take risk. Most people are risk averse and they want to take as low a risk as possible even if they lose out on high return.

You don’t have to go very far to witness this. Take for example, your job. You show up every day and work and leave at the end of the day knowing that you would get your paycheck at the end of every two weeks( or whatever your pay period is), there is no risk or minimal risk involved in working like this but the return are very low. On the other hand, entrepreneurs take big risk by starting a company, not knowing if they are going to succeed or fail. If they fail, they lose everything but if they succeed, I don’t have to tell you what kind of jackpot or return they get. So the two types of people- risk averse and risk takers take different paths to achieving success. Risk averse stay in their cocoon and the risk takers, the rest of the risk averse people work for.

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