Explain the relationship between risk and return and the importance of self-knowledge as an introduction to investing in the stock market
In the previous lesson, we discussed the concept of risk and return. With a simple example, we said that there is a direct relationship between risk and return. That is, accepting more risk from an investor means expecting him to get a higher return, while accepting less risk from an investor means that he is satisfied with a lower return.
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Note that all investment decisions are based on the relationship between risk and return. Because on the one hand, investors seek to maximize their return on investment, and on the other hand, they face risk due to the uncertainty that prevails in a large part of the investment environment. However, what is very important is that the investor chooses the right investment options based on his level of risk. People who tolerate risk-taking can buy stocks directly. But those who do not tolerate risk are not advised to buy stocks directly because the stock price is always fluctuating and they are not guaranteed a return.
For such people, risk-free investment is appropriate, such as buying bonds. You know for a fact that dividends are paid to the individual and there is no risk of a reduction in interest or loss of principal. Therefore, it can be said that the first most important step for investing in the stock market is to know enough about individual characteristics and make decisions based on these characteristics.
The point to be noted is that today, fortunately, it is possible to invest in the stock market for all people with different levels of risk, that is, even very risk-averse people, highly risky people, and people with different levels of risk within this range. They can all invest in the stock market by choosing their preferred method. An investment that fully matches their individual characteristics.
Of course, we must note that there are many ways to reduce the risk of investing in the stock market, which we will mention in the future. The next lesson deals with the difference between venture capitalists and risk-averse investors.
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