You also run major risks on investments on which you can make a high return. A product or investment that offers you a guaranteed return of, for example, 12 percent, must contain a catch. You can limit the risks by settling for lower returns. By trading in shares you can make nice returns on an annual basis. If prices fall, you may also experience significant drops in value, and therefore a negative return. Investors who are prepared to take a lot of risks by investing in turbos or options, for example, can realize or lose tens of percents in a short period. Investors who are satisfied with lower returns also take fewer risks and, for example, invest in government bonds. However, this is not entirely without risks. In May 2010, Europe still had to rescue the poor Greek economy. Those who want to take little or no risk will save at a bank that falls under the deposit guarantee scheme.
Invest safely in shares
By participating in the stock market you are taking risks. You can limit these risks by insuring your investment. For example, you can buy one hundred ING shares. If the prices drop, you will lose some of the money, based on the short term. You can choose to insure this investment by taking out a put option. This option will increase in value when the ING price falls. If the price of the ING share increases, the value of your shares increases and the value of your option decreases. This is a method that you should familiarize yourself with before you step into it. An ill-prepared investor is more likely to make a crucial mistake.
Biggest risks of investing
Historically, it is better to invest in stocks than to put your savings in a savings account. The problem, however, is that an investor does not leave money in shares for twenty years. As a result, investors may face losses in the short term. Another determining factor is the entry point. An investor who started investing in early 2008 will have encountered significant losses due to the credit crisis. It will take many years to eliminate the losses if prices rise. These investors must first eliminate a loss before they can think about returns.
A guaranteed high return is impossible
In the past, several companies were active in the Netherlands that tried to recruit investors for investments in, for example, tree plantations or real estate in Dubai. The companies guaranteed a return of more than ten percent. Afterwards it also turned out that it was not guaranteed. Many investors have lost all or a large part of their investment.
By investing in investment products that have a stable value, you can avoid encountering major losses. A Dutch government bond is a reasonably safe investment, but not without risks. By investing in a company’s bonds, you still run the risk that the company will go bankrupt.
Generate returns without risks
Making a return always means taking risks. You run the lowest risk with a savings account, but you will also have to be satisfied with a low return.