Definition of 'Risk' The chance that an investment's actual return will be different than expected. Risk includes the possibility of losing some or all of the original investment. Different versions of risk are usually measured by calculating the standard deviation of the historical returns or average returns of a specific investment.
A high standard deviations indicates a high degree of risk. Many companies now allocate large amounts of money and time in developing risk management strategies to help manage risks associated with their business and Investment dealings. A key component of the risk mangement process Is risk assessment, which involves the determination of the risks surrounding a business or investment.Investopedia explains 'Risk' A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk that an investor is willing to take on, the greater the potential return. The reason for this Is that Investors need to be compensated for aking on additional risk.
For example. a U. S. Treasury bond Is considered to be one of the safest (risk-free) investments and, when compared to a corporate bond, provides a lower rate of return. The reason for this is that a corporation is much more likely to go bankrupt than the U.
S. government. Because the risk of Investing In a corporate bond Is higher, investors are offered a higher rate of return. Definition of 'Capital Gain'1. An increase in the value of a capital asset (investment or real estate) that gives it a igher worth than the purchase price.
The gain is not realized until the asset Is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. A capital loss is incurred when there is a decrease In the capital asset value compared to an asset's purchase price. 2. Profit that results when the price of a security held by a mutual fund rises above Its purchase price and the security Is sold (realized gain). If the security continues to e held, the gain is unrealized.
A capital loss would occur when the opposite takes place. Investopedia explains 'Capital Gain' 1. Long-term capital gains are usually taxed at a lower rate than regular income. This is done to encourage entrepreneurship and investment in the economy.2.
Tax conscious mutual fund investors should determine a mutual fund's unrealized accumulated capital gains, which are expressed as a percentage of its net assets, before investing in a fund with a significant unrealized capital gain component. This circumstance is referred to as a fund's capital gains exposure. When distributed by a fund, capital gains are a taxable obligation for the fund's investors. In investing, time is your most valuable asset.
The longer your money is invested, the more chance you have of reaching your investment goals because you can take advantage ofcompound interest (if your investment is one that bears interest). Time also tends to smooth out the ups and downs of the market, and reduces the risks.
