Posted by Kara on .
What does this mean? Thank you for explaining this stuff to me. This is just a confusing topic for me.
Without the "risk" factor of investments, there will be less financial gain. ( Would this be considered a negative effect that global peace would have on economics)
Yes. If you follow the stock market, many people are "risk takers" but that means either they will make a lot of money, or lose the investment! If it's a "sure thing" it isn't necessary to "discount" fees or increase the interest. Investing in "Penney Stocks" means you won't lose much money but neither will you gain big profits.
Safe investments -- like bank accounts -- are sure to keep your investment. These are almost always risk-free investments.
However, the more risk you're willing to take the larger amount you MIGHT make if the investment is successful.
Let's consider how you might "invest" $5,000.
The least risky is to put it under your mattress. You won't lose it, but you won't make any money on it.
You could buy a government bond, which has almost no risk, but you won't make much money in interest.
You could invest in stock in a company. This is risky. You might double or triple your money in 2 years if the price of the stock goes up. You might lose over half of your money if the price of the stock goes down.