Why Important High Risk To High Result In Investing?

There are many myths and facts about investing. Some pseudo facts are that high return investments are risky and low risk investments are safe. The truth is that there is no exact curve that gives risks as a function of return. Investments with low returns can also be very risky, for example when fraud occurs.

However, the pseudo fact that risk is correlated with return has some truth to it. You need to understand what causes it.

Money doesn't make money. People make money. Someone else will have to work on that money so that money can produce more money. Let's call those people workers.

The workers include CEOs, entrepreneurs to workers. These workers organize various resources, including your money and themselves, to maximize their return.

How much each worker gets depends on supply and demand. Currently, as a result of centuries of persecution and genocide, people who risk enough to be entrepreneurs, or enjoy learning enough to be CEOs, are underrepresented in the gene pool.

The market values the rare. Thus, entrepreneurs and CEOs are usually paid much more than workers, who are often investors. Realizing this,

The communes are taking sides by supporting the interests of capital owners against those of workers by demanding lower salaries for CEOs.

If you invest in your business, you are both an investor and an employee. Your return as an investor is the amount of profit the workers are willing to share with you. For simplicity, let's say the business is already established with constant revenue.

Let's say the business makes $100,000 a year. Now the total assets of the business could be worth only $100,000.00.

So, in a sense, the workers in this business get 100% ROI for the year, right? Even if the total assets of the business are only $100,000.00, the business is not worth $100,000.00. Any business that makes $100,000.00 a year must be worth at least $500,000.00.

Here's the catch. Why on earth are workers willing to sell you their businesses for as little as $100,000.00? Just as workers have a market value, a monetary wage also has a market value.

We call it the interest rate. Employees know it's good enough to get you a 20% ROI per year.

That's why he won't sell you a business for $100,000.00. He is going to sell you a business for $500,000.00. If you pay $100,000.00, you agree that he will give you 20% of his business.

You see. In a sense, business enterprises do not follow the pseudo-factual mantra of High risk, high profit, low risk, low profit. Risk and profit depend on the skill of the entrepreneurs and not on these curves.

But when offers come to potential investors, workers use this mantra to decide the return on investment they believe the investor deserves.

If entrepreneurs realize that their business is pretty safe, they will give investors a hell of a low ROI. And so the mantra of low risk, low profit, high risk, high profit becomes a reality from the perspective of investors.

Exceptions to the norm

If a woman works as a stripper and gets paid, what is her return on investment? Since he's working a job that needs absolutely no capital and he's getting some money, the ROI is infinite, right? I would disagree.

You have to consider her beauty, the size of her breasts, her sexiness and her young age. We can think of the value of the property as the amount she was willing to pay as a slave. In that case, the ROI is not truly infinite. I don't think it's much higher than a typical ROI. You will see more of this when discussing the ones that are worth it.

Owning a business can be considered an investment. You can buy a product for $10,000 and sell it for $16,000 and get a 60% return within a month for example. Is it risky? No. Many people do this every month. However, in a sense it is not an investment.

If so, we'd be billionaires if we kept reinvesting. His business. His investments we have to work on. In a sense, the real return on investment is not really 60% per month because the business itself has a market value.

Just so you know, with a little work, you can actually get a 60% return on some of your money.

However, you have to work with that money, not just burn it and forget it. So it is not an investment. It's more of a job as a stripper.

Savvy entrepreneurs have huge returns and do no work. In this sense, you simply need to recalculate the true value of his business. So in a sense it is not an investment because it cannot simply increase its earnings by pouring in more money.

If you consider the fair market value of his business as capital and the profit as interest, you can get the ROI by dividing the profit by the fair market value. In that case, the ROI usually drops back to the standard amount.

And then there are risks that are not related to the investment, but related to you. For example, investing offshore tends to be less risky than investing in your home country. Why? Well, you'll never know the next time you're going to run into some frivolous lawsuits or some religious fanatic is going to sweep your stores.

The places where you live are places where you often fight with others. Talk more about this when we talk about offshore investing.

Some investments are pretty bad. Putting money in the bank can often yield so little return that the return is actually less than the rate of inflation.

This means that you actually lost money every year. It is also risky in a sense because you are guaranteed to lose your money every year. How come that for low risk low return. However, people put their money in the bank for liquidity and risk balancing in other investments.

Manipulation of return and risk

Risk and return can be manipulated. For the same return, investors can get less risk by diversifying their money. However, this process is cumbersome. Such processes turn investing into another business.

For the same risk or very low risk, an investor can increase the return by leveraging their money with borrowed money. This is usually done in the real estate industry.

Banks have realized that the value of land is relatively stable, so they are usually more willing to lend money to the land banking industry than most others.

Thanks For Visit : https://insidernation.blogspot.com

Why Important High Risk To High Result In Investing?