Why do returns from an investment carry a risk?

Answer 1

Because whatever/whoever you are investing in is not a sure thing. If you had invested in Enron 10 years ago, it was a bad risk. If you had invested in Microsoft 25 years ago, you'd be a happy camper - the investment/risk was worth it. When you invest your money, you're in essence betting your money that the business/person will do well. The risk is spread out. The higher the risk, the more your payback should be. If you want very little risk, get a savings account or US government bonds. There is still risk, but very, very little. Your return on investment will not be great, but you aren't risking much.

Answer 2

Well it depends on the investment you make and the inherent risks of the investment. If, for example, you invested in the stockmarket you are investing into a company. As part owner of that company (on a miniscule scale of say 0.000001%) you will be given voting rights towards how the company should be ran. If the company's performance exceeds expectations/meets expectations you can expect not only a rise in the stock's value (and thus a gain if you were to sell your stock) but also the possibility of a dividend. Conversly if a company was to return lower than expected expectations you can expect the stock to decrease in value (as its worth may be less to potential investors) and there could be the possibility a dividend would be suspended/not paid - this would lead to the value of your investment being lower than your initial input if you were to sell the stock. The risk, therefore, is that the company could fail. If you invested your money in a home the basic principles are the same. The home may rise in price due to various factors (improved neighbourhood/facilities near your home, more buyers than sellers etc.), but again may fall due to the opposite effects (neighbourhood becomes run-down/more selling than buying etc.) The vast majority of investments have some form of risk. Even investing your money in a bank (by way of a savings account) carries a small amount of risk - banks have been known to collapse and people with savings in the bank had their money returned only in part (if at all). Infact even keeping your money in dollar-bills carries risk as the value of a dollar fluctuates across the international markets and inflation will eat into the value over time.