Reference no: EM132668624

There is always a catch. When it comes to investing the catch is risk. In an earlier week we talked about borrowing money as a leap of faith. The lender expects you to repay the loan - but they can't know for sure. They can "secure" their loan against what you borrowed for - the car or the house. For the lender, there is the risk though that they don't get the full value back.

If you invest in shares - you are the last one to get paid. Everybody else gets paid before the shareholder. So they take a big leap of faith!

So debt (bonds, fixed interest securities) is lower risk than shares - but lower returns as well. That's the catch. If you expect high returns you are going to have to stomach higher risk - the roller coaster of returns is steeper.

So how much risk can you tolerate? The text emphasizes that when you are investing you need to consider the risk of your human capital. How risky do you consider your human capital? Is you human capital higher/lower than the average? Why?

Note*: When answering the question, put yourself in the shoes of an 18year old university student.