If you don’t invest in an investment, you’re not making money or you keep all your money under your bed. This is not at all the case for most people. In fact, almost all personal money is managed in investments.
Low risk and high risk in an investment
An investment is a sum of money that has been entrusted to an entity for management for an uncertain period of time and whose objective is to hope for a gain in return. The investor therefore wants to get a return on the money he has at his disposal by placing it in the entity concerned. It can be a broker, a shareholder, a promoter, a bank, an online bank, etc. However, it should be noted that apart from savings accounts where investments are systematically beneficial, there are many investments that are determined by risks. The risks are due to the fact that the investment management entity itself invests the total investment in the production of products and services, in the stock exchange, etc. these activities can collapse with a simple political and economic event. Thus, many investments involve risk. And this must be taken into account.
How to assess low or high risk
To assess investment risk, specialists use the Sharpe index, which is an estimate based on the ratio of the difference: risk-free rate of return to the standard deviation of the rate of return. This ratio is an indicator that is calculated taking into account the benchmark risks. Therefore, if the index is less than zero (negative) the investment is not recommended. There is a low risk if the ratio is 0 or close to it, i.e. the money does not increase or decrease. If the ratio is positive, it is profitable. There are other indices to evaluate the situation of an investment such as the Sortino ratio.
Low-risk investment categories
There are several investment categories. One that generally has advantages is investing in foreign currencies. These investments have ceilings, but their rate of return is generally constant. On the other hand, there are assets and real estate. Very risky compared to the above. However, profits can be higher. There are periodic savings plans such as life insurance, home savings plans.