Describe a near-term goal and a distant goal and think about why time matters.
Risk is the possibility that the outcome will be different from expected, including loss.
Investments with higher potential returns often carry higher risk. Money held without change in the number of shekels is also exposed to erosion of purchasing power. It is important to understand when you will need the money and how much uncertainty you can bear.
Money for a trip in a week serves a different purpose than money for a distant goal.
Describe a near-term goal and a distant goal and think about why time matters.
Two imaginary portfolios start at 1,000. One scenario ends at 900 and another at 600: losses of 10% and 40%. The same starting amount does not imply the same risk. Also ask when the money is needed and whether the asset can be sold at that time. Write three scenarios, including an unfavorable one, and identify which assumption changes between them. These are exercises, not forecasts.
Concepts that help you compare
Diversification: more than one basket
Diversification is splitting investments among different assets and sectors. This reduces dependence on a single asset. Three companies in the same sector may behave similarly, so the number of holdings alone does not guarantee good diversification. A diversified portfolio can still fall when the market declines.
Comparison example: Three game companies depend on some of the same factors. Combining different sectors changes exposures.
A historical average describes a certain period; it is not a commitment to a future outcome. Two investments with the same average can experience different swings. Correlation describes joint movement and does not prove causation. Choosing the start and end dates changes the return you show.
Comparison example: One year +50% and the next year −50%: 100 becomes 150 and then 75. The arithmetic average is 0%, but in reality there is a 25% loss.