Returns are linked to the level of risk taken.
While high risks do not necessarily means high returns, low risk investments will for sure give you low returns. Indeed High risks investments can provide you any returns from deep losses to huge gains and anywhere in between. Let s try to explain this phenomenon a bit more by providing some tangible examples:
· Example of low risk investment is a saving account in a major bank in a developed country with top credit ratings. (If you do not know the credit ratings of the country you are interested to invest in click here to find out). What kind of returns can you expect from such an investment? Well just look at the interest rate the bank is offering you and you will get a definitive answer. This interest rate or return will unfortunately definitely be low and should not be pretty close to the inflation rate. What you will not know is you return adjusted for inflation, in other word your real return. Indeed, if inflation runs at 2% and that the interest rate you are receiving is 1.5%, you are actually losing money in real terms.
· Example of high-risk investments is investing in stocks in an emerging or frontier market. As we mentioned before, returns of this type of investment are not predictable (at least in the short term). When you buy Vietnamese stocks for instance, you can expect anything between -30% and +50% return per year.