THE RISKS INVOLVED IN INVESTING

Finding the balance between eating well and sleeping well

- TLOTLISO PHAKASI

IN THE first of this two-part series on investment basics, we concluded by stating that while cash investments may offer greater capital protection and lower risk, this comes at the cost of lower returns relative to other asset classes.

This implies that if you are looking for higher returns that will ideally beat inflation (also known as 'real' returns), you need to be prepared to take on some risk.

The risks in investing

While investing can earn you money, it also carries risks. The greatest risk is that you will lose your money-because unlike bank savings accounts where your capital or money is guaranteed, investments do not carry guarantees.

Take the example of Steinhoff-on 23 May 2017, Steinhoff shares were worth R50.25 each, but by 11 May 2018, just a few months after its collapse, these shares were worth only R1.60 each.

That said, some investments are far less risky than others, and the amount of risk you are willing to accept will impact your potential returns. An investor who takes on more risk may earn greater rewards over the long term than an investor who opts for less risky investments.