Money Monday: What is risk and how does it work?

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LANSING, Mich. (WLNS) – Monday may have passed, but WLNS is still here for you with the latest in the financial world.

Have you ever heard the term “risk” when discussing finances and wasn’t quite sure what it meant? Local money expert Stephen Schiestel breaks it down for us in this Explainer.

“Risk” is essentially how volatile a security is, or how much a security moves.

The lowest risk investment would be cash. Cash generally generates a return on investment of around 2-3%, similar to the rate of inflation.

Bonds aren’t very volatile, and they can generate up to 5% in returns.

Stocks are the most volatile but can come with the highest rate of return. The average of return on stocks is 10%.

Schiestel says that, as in investor, it’s important to know your goals.

“What kind of return am I going to need to hit that goal?”

If you’re open to risking your money, you can go with stocks and get a higher return quicker, but the risk of losing your money is greater.

If you are okay with a smaller return on investment, cash or bonds may be your best bet as risk is lower.

Schiestel warns investors to be realistic. Bonds aren’t going to net you as much profit as stocks because they are less risky.

You can’t have stock-like returns with risk similar to that of a checking account, he said.

Check out the video above for Schiestel’s full thoughts on risk.

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