Question

Compare two investments - gold and common stock. Which investment type do you think has more risk? Why? Explain your answer. Which would you prefer to own? Why?

Answer 1

Between gold and common stock, common stock has greater risk. This is because the value of stocks fluctuate every minute. They are dependent upon a huge number of economic, political and technological factors. They also depend upon company performance, announcements and changes in the company. They also depend upon investor requirements and expectations. The slightest change can have a huge impact on the value of common stock. Hence the price of common stock is extremely volatile. The value of gold also changes but is less volatile than common stock. Hence due to higher volatility common stock Carries a greater risk.

I would still preferred to own common stock since I have a high risk taking ability. There is greater possibility of making huge profits in the share market rather than owning gold which will increase in value only in the long term and at a slow pace.