Any form of investment, you must first consider risk. Thinking of only profits in the beginning is an amateur way of thinking.
Let's go over a few examples or risk.
1. Inflationary risk: inflation will erode your purchasing power. You need to beat inflation to actually make money. Typical inflation is 3-5%.
2. Business risk: initial investment in a company. This is a high risk = high reward risk but you need to be aware that you may lose your entire investment. Also, if you borrowed money you can find yourself in a tremendous debt.
3. Timing risk: timing is also important in any investment you make. For example, if you bought a house at the peak of a economic cycle you are paying alot more than you can several years down the line. If you sell a stock just before it becomes a 10 bagger, this is a lost opportunity.
4. Market risk: The global economy is vast and unpredictable. Your investment in China can be eliminated due to goverment policies, your 401k plan may disappear due to a bear market. All of these uncertainties are market risks.
Always put risk capital aside from living expenses. If you are investing with your kid's college fund, that is a bad idea. If you are investing with your life savings, that is not a good idea. Always have a strategy and never let some financial expert manage your money blindly. Research and do your homework first. I know too many people who know nothing about the financial markets buying stocks because of a phone call from a broker. Avoid these costly mistakes!
Sources for mutual funds for those who are interested:
1. Investor's Business Daily
2.
www.multex.com
3.
Morningstar: Stocks, Mutual Funds, Investing and Personal Finance
4.
Value Line Home Page
5.
VectorVest - The Intelligent Way to Manage Your Portfolio