Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Risk Lover

What it is:

A risk lover is an investor who has a high propensity to engage in risky investments. A risk lover is the opposite of a risk-averse investor.

How it works (Example):

Let's assume you are considering purchasing some stock in Company XYZ, which has been very volatile recently. Because Company XYZ's recent volatility indicates that it carries a high level of risk, the probability of gain (and the probability of loss) is also high.

There are many ways to measure the risk associated with a security or an investment strategy, and Beta is among the most common.

Why it Matters:

In the investment world, high risk means the potential for high returns and high losses, and low return means a low potential for high returns and high losses. Thus, investors who are risk lovers generally choose high-risk investments.

Being a risk lover is good and bad. The returns can be far higher, but when it's inappropriate for an investor to risk losing cash (for example, if the investor is planning on retiring soon or must put a child through college soon), there is little time to recover from any losses. Thus, sometimes it is more appropriate to be risk averse.

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