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Once you have a sense of the money you can spare for investing, you’ll need to decide just how much risk to take with those funds. Unfortunately, all too often people skip this step. They think of investing money like gambling money. Once they decide how much they’re willing to play with, they’re willing to risk it all.
Investment planning is almost impossible without a thorough understanding of risk. There is a risk/return trade-off. That is, the greater risk accepted, the greater must be the potential return as reward for committing one’s funds to an uncertain outcome. Generally, as the level of risk rises, the rate of return should also rise, and vice versa.
Like anything in life – to every positive there is always a negative no matter what the situation is, or the circumstances are. The best investment advice that you can ever receive is that it is never unintelligent to be overly cautious - after-all, you are dealing with your own money and want to ensure that you get a good return for sacrificing it. The element of chance in investing is referred to as the risk of investing and it is essentially the deviation away from your original investment expectations.
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