Major Risk Factors of Investing: How to Avoid Them

Sonic Trader02 Nov, 2022Finance

When it comes to investing, we are faced with two different types of risks: good risk and bad risk. A good risk is a kind that you are compensated for taking. Compensation is in the form of higher expected returns. For example, equities are riskier than fixed-income investments. Therefore, equities should compensate investors by providing higher expected returns. Of course, the risk is that the expected doesn't happen. Similarly, stocks of small-cap and value companies are riskier than their large-cap and growth counterparts. It can be risky sometimes when we invest in individual stocks that do offer the possibility of market-beating returns, but they also offer the potential for disastrous results.