Risk is the Price of Admission to Investing

Everything in life, individually or socially, is a trade-off. We determine the risk levels we’re willing to tolerate.

— Robert Merton, Nobel Laureate in Economics

The fact is simply this: where there is no risk, there is little reward, which is why it is so hard to make much money on a “sure” thing.

Stock markets that always rewarded investors or, conversely, never made anyone money would quickly collapse. Only a market that has both up and down periods offers the potential for long-term returns. While we can’t predict when these ups and downs will occur, we do know — in general — that markets rise and fall for rational reasons — strong or weak economies, geopolitical issues, new technologies, etc. One of your major decisions as an investor is how much risk you can tolerate. Which in turn determines how much potential return you might expect.

Investing in stocks is investing in thousands, of companies who have created something the economy finds valuable. Those companies that survive and thrive are innovating over time, developing or acquiring the expertise to bring newer and better products to market. Not every company will survive, and markets as a whole will keep going up and down. But if you can handle the risk, you will probably be rewarded over the long term for staying the course.