Investing in stocks and shares does have an element of risk, but because of this the rewards can be greater. Investors have to bear in mind that there is always a trade-off between risk and expected return - this is also true of dividends and growth.

The more risk you are willing to take the higher the potential return.

If you put your money in a building society savings account, there is a strong likelihood the society will stay in business and be able to pay your agreed (but usually low) interest at the end of the year.

If, on the other hand, you invest the money in a small company, you may make a significant profit as strong demand makes the share price rise - or you may lose everything if consumers shun the new product or some other mischance occurs.

Many people prefer to take a little more risk in order to invest directly in shares for the higher potential rewards. As long as the timescale is five years upwards, stock market returns are likely to be better than other forms of saving.

If you decide to invest in companies listed on the stock market you should try to estimate where the investment lies between the two extremes - low risk, low return, and high risk, high (potential) return.

If you are not comfortable with the level of risk, don’t go ahead, and in any case, don’t invest money you ultimately cannot afford to lose.

The first rule is to be as well-armed as you possibly can be in terms of information - find out about the company, its position in the market, its ability to generate profits, and the quality of its management. But no matter how well you have done your homework, there will always be some risk that the value may fall, or the company may go out of business altogether, losing you all your investment.

These days, not even the biggest companies come with a safety guarantee - just look at Lloyds and Royal Bank of Scotland!

If you do invest in the stock market, there is one risk management rule above all others: ‘spread your risk’ - i.e. don’t put all your eggs in one basket. Never have all your investment in one company or one market sector. If that particular company or sector suffers badly, your investments will be hit hard. If your investments are spread more widely, a setback in any particular sector will have a reduced impact on your whole portfolio.

Be patient. The stock market goes up and down, sometimes at an alarming rate, but if you have confidence in your companies and have chosen well, then the share price should rise again with the market.

There are a number of techniques used by investment professionals in an effort to improve success ratios. Here are the two most popular ones.