When you invest, you take certain risks. You face the possibility that you might lose money. Remember, there are no guarantees. Why would you risk losing your hard-earned money when you could just put it in a savings account with a guaranteed interest rate?

Where there's risk, there's also reward. Experience shows that you will make more money over time with a good investment strategy than you could possibly make with a savings account, or with other low risk investments. Risk and reward go hand in hand. Risk is the uncertainty of how your investment will perform. Will it pay back more or less than you expect, or might you even lose money? As risk goes up, so does the reward if your investment pays off. On the other hand, as risk goes up so does the chance of losing your money if the investment doesn’t go up.

Measuring How Your Investments Perform

Before we talk about risk, let's look at how to measure what your investments are doing. The rate of return is how people usually evaluate their investments. Simply put, the rate of return is how much money you are making on an annual basis, usually expressed as a percentage. This number tells you how fast your money is growing, or if you're losing money, how fast it's shrinking.

With a savings account, your rate of return is guaranteed by the bank. It may vary from month to month, but it's always positive. With other investments, you might have periods with a negative rate of return, even if the return is positive over the long run. Think of stocks. The price for a certain company stock can go up or down for long periods of time.

What's The Rate of Return?

It's impossible to know the exact rate of return for your investment until the day you sell the stock. Even so, it's important to know what your current rate of return is so you can compare it to other investments you've made. Practice figuring out this number in this non-graded interactivity. Click the player button to begin.

How do You Fit into the Equation?

Are you a daredevil, or do you like things to be more predictable? Are you responsible for anyone else's needs, or do you only have to worry about yourself? Are you just starting out in life, or are you getting ready to retire? These questions can have a big impact on how much risk you are willing to take in your investments. Let's take a look at how your personality and life circumstances impact your investment decisions. Click the player button to begin.

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Evaluating Investment Risks

When it comes to picking what investments are right for you, different types of investments are inherently higher and lower levels of risk. In this interactivity, you will look at the relative risk levels for investments. Click the player button to begin.

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