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Finance: What is risk? 4 Views
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Description:
What is risk? When looking at risk from an investment standpoint, it’s not all bad. As with any decision, higher risk can mean higher reward, and this is certainly the case in the investment world. Unfortunately, higher risk can also mean higher loss. Either way, risk should be looked at pretty thoroughly when making investment decisions, and should correspond with the investor’s financial goals.
- Social Studies / Finance
- Finance / Financial Responsibility
- Life Skills / Personal Finance
- Finance / Finance Definitions
- Life Skills / Finance Definitions
- Finance / Personal Finance
- Courses / Finance Concepts
- Subjects / Finance and Economics
- Finance and Economics / Terms and Concepts
- Terms and Concepts / Company Valuation
- Terms and Concepts / Investing
- Terms and Concepts / Metrics
- Terms and Concepts / Stocks
- College and Career / Personal Finance
Transcript
- 00:00
finance a la shmoop. what is risk? it's a game! this one remember Parker Brothers
- 00:08
roll the dice move your armies take Kamchatka own the world! okay so that's a [risk board game pictured]
- 00:13
slightly different variant than investing risk. but think about the
- 00:17
notion of risk and reward being married to each other in a we fight every
- 00:21
Thanksgiving and question why we were ever married in the first place kind of
Full Transcript
- 00:26
way. buy a US government bond and the odds it doesn't fully pay as promised are
- 00:31
about equal to the odds of our being nuked. typically investors trade-off
- 00:36
between risk and reward if you take high risk you want high reward, or at least
- 00:41
the potential of it. it would be kind of stupid to take high risk for no reward
- 00:45
right? well the US government pays its bills hi Greece we're looking at you. but
- 00:50
a bond only gets you a few percent a year return these days. had you bought
- 00:53
call options on Amazon when it was 500 bucks a share with those call options at
- 00:59
$700 expiring four months later, well you'd have taken massive risk but at the [chart showing growth of amazon stock going up]
- 01:05
end of those four months had you timed things right
- 01:08
you'd have made like 20 times your money. how do you timed it just one month early
- 01:12
or late well you'd have lost everything. investing in the stock market generally
- 01:16
carries two flavors of risk. there's market risk ie the risk that the whole
- 01:21
market goes down and you lose money that way, and then there's intrinsic or
- 01:26
individual stock risk. ie the market just trundles along but you pick a bad stock
- 01:31
and it goes down while the market is flat or goes up. got it ?market risk .the
- 01:36
whole world blows up and your nest egg gets taken down with it. intrinsic risk.
- 01:41
it's only you who sucks. you put all your eggs in a basket with a bad handle and
- 01:46
well now there are a lot of chickens that ain't going to happen. [eggs in basket]
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