Last updated: April 6, 2016

What You Need to Know About Risk

When you are looking into investing, it is important that you understand different risk levels and the amount of risk you are willing to take. Controlling risk means much more than being "comfortable" with an investment. Many investors may be too comfortable with too much risk. 

The basic thing to remember is that investment risk rises as the potential return increases. The bigger the risk, the bigger the potential payoff. Don't forget that first "p" word! It really is just potential payoff. If you turn it around, the bigger the potential payoff, the bigger the risk of losing money. 

Does this mean you should avoid all high-risk investments? 

Probably not if you have a long-term diversified investment plan. It means you should limit your investment, in the 'high risk' part of your overall portfolio, to as much as you can afford to lose, because you might just lose it. You can learn more about risks and rewards of investing and the importance of diversification to spread risks among many investments here.

What Investors Need to Know Before Using High-Risk Investment Vehicles:

  • You should prepare to suffer substantial financial losses. Only invest money that you can afford to lose.

  • Do not believe claims of easy profits.

  • Be cautious of “hot tips” and expert advice from newsletters and websites catering to day traders.

  • Remember that “educational” classes, seminars, and books about investing might not be objective.

  • Be wary of trading with borrowed money.

  • Check out whether a firm has a disciplinary history. Contact the Office of the Kansas Securities Commissioner.

Learn about other investment options here

This article is published on KansasMoney.gov. Find more information by contacting these state agencies: