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  • According to modern investment theory, the greater the risk you take in making an investment, the greater your return has the potential to be if the investment succeeds.

    For example, investing in a startup company carries substantial risk, since there is no guarantee that it will be profitable. But if it is, you're in a position to realize a greater gain than if you had invested a similar amount in an already established company.

    As a rule of thumb, if you are unwilling to take at least some investment risk, you are likely to limit your investment return. For example, if you put your money into an insured bank deposit, which protects your principal, your real rate of return is unlikely to exceed inflation over an extended period.

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