The average investor likes high returns but dislikes risk. Investments with a higher risk need to offer investors a higher expected return. In other words, if we seek higher returns, we must be willing to assume higher risks. If we expect high returns on investment, then we are ready with high risks to be borne. However, if you feel hesitant and you wish to learn more before investing in stock for real, you can visit alphabetastock.com right away.

Then, by diversifying wisely, investors can drastically reduce the risk of investing in stocks without lowering the expected rate of return. As the saying goes, Don’t put all your money in one or two stocks, or just one or two industries. The biggest mistake that many people make is investing most of their funds in the stocks of the companies they work for. When the company goes bankrupt, they lose not only their job but their investment as well. Even though no stock is complete without risk, we can reduce it by having a well-diversified portfolio.

Aside from that, all investors should understand the difference between nominal returns and real returns. When assessing performance, what matters is the real return, that is, the residue after inflation. As inflation is expected to rise, investors will need to accept higher nominal returns.

Furthermore, how does time affect the value of the stock investment? Investing in common stocks, for example, can be very risky for short-term investors. On the contrary, in the long term, the shocks will subside. So the stock will be less risky if it is owned as part of a long-term portfolio. Jeremy Siegel of the University of Pennsylvania in his book Stock for the Long Run concluded that. The safest long-term investment to maintain purchasing power is to invest in stocks, not bonds.

Finally, although the past can provide us with an overview of the risks and returns of various investments. However, there is no guarantee that the past will repeat itself in the future. But keep in mind that the past is history that can be used as a valuable lesson for those who want to pay attention.