The risk is given by the uncertainty and we will refer to it as the probability of occurrence of any adverse event.

When an investor decides to invest their money in any investment vehicle he takes the risk that things do not go as planned as a result of a variety of causes. Therefore the risk involves different classifications such as: market risks, natural hazard risks, financial risks, strategic risks for bad business decisions, etc. Whatever we do, the risk exists and is part of an investor tasks to analyze and study the probability of risk, to minimize it, avoid it or have a contingency plan.

On the other hand we have the profitability, which we define as income or gain received on an investment plus (or minus) any change in the market price. Profitability is determined according to the type of investment that is carried out.

Based on these two terms there is a major financial law that must be taken into account when investing:

“If the risk is high, the profitability should be higher too”

If we are medium risk investors, then we’ll get medium risks and therefore our profitability will also be medium. If we are investors who have achieved high returns it was because we took high risks.

This is one of the most important analyses that an investor should make. I suggest you do more research on this topic, however in the future we will be posting more about this.