What is Your Investment Strategy?
Risk, unfortunately, is a part of investing. When you start to dip your toes into the world of financial investments, one of the first things that you learn is that there are two types of investments that are available, high and low risk-investments. High-risk investments, as their name implies, tend to be more risky for the person putting their money forward, however, the potential rate of return on said investment can be rewarding if everything turns out as it should. On the other side of the coin, low-risk investments tend to be safer in terms of making sure that a person doesn’t lose their initial investment but the potential return is typically lower. Here at Owner Builder Loans, LLC, we want to make sure that everyone who is looking to invest in our loan program has as much information as possible about investment strategies so that they know exactly what to expect when making an investment with us. In today’s post, we are going to go over the differences between high and low-risk loans in the hopes that all of our readers understand exactly what they are getting themselves into when they chose to enter the world of financial investing. Keep reading below to learn more.
What is Risk?
While most people understand what risk is in terms of day to day life, fewer people understand risk as it pertains to investing. Given how fundamental risk is to investing, many people are under the impression that risk is a measurable variable that can be factored into an investment with a little research. Unfortunately, the financial world cannot seem to agree on what the term “risk” actually means or how it should be measured. Researchers and academics who focus on the financial market often try to use volatility as a way to measure and define risk which, when looked at through the lens of investing, makes sense. Volatility, in financial terms, is a measure of how much a given number can vary over time. The wider the range of possible number fluctuation, the more likely it is that some of those possibilities will be bad. While volatility is relatively simple to measure, it is still a flawed way of looking at risk. While it is true that the more volatile an investment is the more likely it is to expose the investor to a wider range of possible outcomes, just because an investment is volatile does not necessarily mean that this volatility will impact the likelihood of negative outcomes. In many ways, volatility can be compared to turbulence on an airplane. While the turbulence is unpleasant and even scary at times, it does not necessarily bear much of a relationship to the likelihood that a plane is going to crash.
A better way to think of risk is the probability that an asset is going to experience a permanent loss of value or is going to perform below the expectations that are projected. For example, our owner builder loans have an expected return of around 10 percent. The likelihood that our investments will provide a return that is below 10 percent is the inherent risk of the investment.
What Defines a Low or High-Risk Investment?
When trying to define whether an investment is high-risk or low-risk, it is best to look at the potential loss of capital and/or underperformance of the investment relative to the expectations of said investment. A high-risk investment is an investment that carries with it a large percentage chance of loss of initial capital or underperformance, or a relatively small chance of a huge loss on the investment. While high-risk investments might sound like something that people should avoid at all costs, it is important to look at another example to put things in perspective. The odds that you will experience a car crash in your lifetime are relatively high, however, the odds of death are relatively low. Plane crashes, on the other hand, are a relatively rare occurrence, but the odds of dying in a plane crash are quite high. What this means is that investors must consider both the likelihood and magnitude of bad outcomes when deciding on an investment. Low-risk investments, the category our investments fall under, provide better protection against the chance of any loss happening while also providing the security that any of the potential losses will not be devastating if they do occur.
If you would like to learn more about our low-risk investment opportunities, please contact us today at Owner Builder Loans, LLC. We have a track record of providing amazing investment opportunities and we believe that once you learn more about our loan program, you too will see how beneficial this investment opportunity is. Contact us today and let us show you how great it is to have your money work for you.