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High Risk, High Return

Many investors purchase a particular stock with the intention of making a big profit over a short period of time. However, this action is not investing, but a pure gambling. The reason for this is that you are never guaranteed that you will get the high returns you hope for over such a short period of time.

There may be times in which stocks have put a record on short-term growth, but these occurrences are very rare. On average stocks have returned from 10% to 12%. However, this doesn't mean that all stocks return at these rates.

The stock market is characterized by the trade-off between risk and return. The higher the risk the investor is willing and able to take, the higher the potential rewards from the investment. Therefore, if a particular investment offers you high returns, it is an indication that it will come with a high risk burden.

As part of the selection process, you should determine the risk level of the stock as well as your risk tolerance. If you are looking for high returns you should be able to meet high potential losses as well.

Many investors prefer young technology-oriented companies over blue chip companies, because the first provide higher returns than the latter. However, the latter provides its shareholders with regular dividends to compensate for the modest growth.

So, the next time you are offered a stock that is expected to triple in value over a short time period, think carefully whether to invest in it, because the chances of it failing to reach this level of return is extremely high.

Final Piece of Advice

Remember that there is no safe investment that will provide you with high returns over a short period of time. Therefore, you should direct your resources toward long-term investments that are more likely to reward you for the patience with high returns.

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