The term risk aversion is often applied to certain types of investors. Here are the basics of risk aversion and what it means to investors.

Risk Aversion

The term risk aversion basically means that you do not like risk. Some investors prefer to play it safe whenever they are investing their money into anything. Because of this, they will evaluate investments based on how much risk they are taking on. While some people see only the possible returns of an investment, other people see how much money they could potentially lose instead.

Choosing Investments

Some level of risk aversion is present in every investor. No one wants to take on an investment that has more risk than potential returns. However, if you plan on making any returns in the investment world, you are going to have to take on a certain amount of risk. Every investment carries with it some level of risk. Therefore, whenever you are choosing investments, you might have to simply choose the investment that has the least amount of risk associated with it. These types of investors will typically invest in CDs, index funds, money market funds and other "safer" investments while avoiding stocks and bonds. 

 

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