"What is the chance that I'll lose money?" Every investor asks himself this question when making an investment. And understandably so–nobody likes to lose any of his or her hard-earned money. The key to understanding risk—and getting it to work for you—is to understand the trade-off between risk and reward.
Simply put, to seek greater rewards—such as a higher investment return—you must be willing to accept greater risk. If you wish to reduce risk, you must be willing to accept lower returns.
Historically, foreign stocks have entailed the most annualized risk, followed by U.S. stock and lastly Treasury bills. The more risk you are willing to take, the higher your return potential may be. But, it is possible to seek a high long-term return and keep your risk relatively low with a diversified portfolio.
