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The Motley Fool's Guide to Investing - Part 10

Further Reading

Have you heard of the phrase, "no pain, no gain"? In investing circles, there's something similar – "no risk, no reward".

Most people understand what reward means. When investing, this is your return, or the growth you get from your investment. But the unavoidable other side of that coin is riskthe possibility or probability of loss. More specifically, that's the chance of losing your money.

Reward and risk tend to be in an inverse relationship; generally, bigger rewards require bigger risks. And while that's not always true, investing in higher-risk assets often results in bigger rewards than those from lower-risk investments – sometimes by serious amounts.

If you want your money to work hard for you, being able to understand and live with some measure of risk is essential.

Importantly, though, there is one way we believe investors can both fight risk, and increase their reward. And that is in buying and holding stocks for the long term, enabling the power of compounding over time.

Compounding is when your interest earns more interest. It's the process through which investments generate increasingly larger returns over time. Albert Einstein is reported to have said "compound interest is the eighth wonder of the world," and we're fully on board with that.

In our opinion, time is perhaps the most valuable resource you have as an investor – the more time on your side, the higher you can realistically set your expectations.

Thanks for reading along! We hope to see you in our Member pages some day soon.

To your wealth, wisdom and happiness,

The Motley Fool Australia

*Video recorded November 2021 and accurate as of that date; facts and figures may have changed since.

P.S. If you'd like to see more of Scott, don't forget you can get his news, updates and latest recommendations inside Motley Fool Share Advisor. And as a way of saying thanks for watching our Guide to Investing series, click the button below for a special offer...