Risk vs return

Training 625 minutesrisk vs return

You are 34, work in logistics and have $5,000 saved. Ads promise 30% a month. The bank pays 4% a year. Where is the truth?

Training goal: Find the risk level that fits you

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Situation

1. An acquaintance offers a "safe project": 5% a month, guaranteed, no risk.

Say no: that does not exist
Try it with $1,000
Put in everything, it is guaranteed

2. Your cushion sits separately. For a goal 10 years away: savings at about 4%, bonds about 5%, a stock fund historically 8-10% with drops of up to 40%.

Savings only: never lose a cent
A stock and bond mix that fits my timeline
Everything into one hot sector

3. Your portfolio fell 20% in a month: $5,000 became $4,000. The news is scary.

Sell it all before it gets worse
Borrow money and buy the dip
Hold the plan, keep contributing

4. You realize a 20% drop keeps you up at night. How do you set your risk going forward?

Lower the stock share to a level I can hold
Tough it out: risk pays off long term
Leave the market for good

What you will learn

High return with no risk is a red flag for fraud.
Higher return only comes with higher risk, and drops are part of it.
Pick a risk level you can hold through a panic.

Your real-life step

Imagine your investments drop 30%. Write down honestly what you would do. That is your risk tolerance.

Questions and answers

What is the risk-return tradeoff?

It is the rule that higher expected returns come with bigger and more frequent price swings. With no risk, you earn roughly the savings rate.

What are the safest investments?

Insured bank deposits and short-term government bonds from a stable country. Their return is usually only slightly above inflation.

How do I know my risk tolerance?

Look at your time horizon, income stability and how you react to drops. If a 30% fall would make you sell, hold fewer stocks.

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Numbers are illustrative. A game, not financial advice.