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Encouraging Moderate Risk-Taking Behavior

  • By admin
  • July 22, 2016

Findings By Outsource Financial Research Firm:

A simple fact that most people tend to overlook, documented by Outsource Financial Research firm Market Quotient, is that the amount of risk you take does not determine your level of return. Well it does to some extent. But associating a greater risk with a greater return is sheer folly.

It has been found that on average, the incremental return diminishes with each unit of added risk that ultimately turns negative at high risk levels.

This happens because:

  1. People are often not very adept at predicting market outcomes and returns on risk. The situation deteriorates if the risk is high. High risk and chancy situations, because people want to make it big too soon, is often common.
  2. When it comes to investment options, people often buy when stock prices are high and often forego stock options when stock prices hit a low-note. People are not very good at predicting investment opportunities when prices are low. Thus, a lot of money is lost in buying and selling.

Whenever it comes to choosing good stock, you should always really on your area of competence so that the probability of investing in a good stock goes up. Consequently, the probability of investing in a bad stock goes down.

Further Observations And Conclusion:

Outsource Financial Research firm Market Quotient further observed the following. A volatile investment often leads to people losing out on their investment rather than holding onto their investment for a long term. Therefore, stocks being long term investments, you should not hold onto them if it seems that things are not going to work out in the long run.

But people are often rash and do not understand the meaning of moderate risk-taking. You should size your risk in such a way so that if a mishap occurs you can live with it. At Market Quotient, we work with credit risk analysis so that our client can take informed decisions. This would minimize risk and maximize returns.

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