Expected Returns and Risk
Investing is all about managing risk and reward. While no one can predict the performance of a given investment, investors can evaluate the expected return and the associated risk of any given investment. Generally speaking, investors prefer higher returns to lower returns for a given level of risk, and less risk to more risk for a given level of expected return.
The risk-return tradeoff is an important concept in investing. It states that the higher the risk an investor is willing to take on, the higher the expected return. Conversely, the lower the risk an investor is willing to take on, the lower the expected return. This relationship is known as the risk-return tradeoff.
Risk aversion is a concept that states that investors tend to prefer investments with lower risk and lower expected returns to investments with higher risk and higher expected returns. This is because investors are often willing to sacrifice expected return in order to reduce risk.
Portfolio diversification is a strategy used by investors to reduce risk by diversifying their investments across multiple asset classes. By diversifying their investments, investors are able to reduce the overall risk of their portfolio and improve their expected returns.
- What is the risk-return tradeoff?
- What is risk aversion?
- How can investors reduce risk?
- What is portfolio diversification?
- What is the difference between risk and return?
- How do investors balance risk and return?
- What are the benefits of diversifying a portfolio?
- What is the relationship between risk and expected return?
- What is the difference between absolute and relative risk?
- What is the relationship between risk and reward?