Wealth Management
Wealth Management
Investment Academy
The risk-reward correlation in investments refers to the fundamental principle that higher potential returns typically come with higher risks. Understanding this relationship helps investors make informed decisions based on their risk tolerance, financial goals, and investment horizon.
Key Aspects of Risk-Reward Correlation
Key Aspects of Risk-Reward Correlation
01 Direct Relationship Between Risk and Reward
Low-risk investments (e.g., government bonds, savings accounts) offer stable but lower returns. Moderate-risk investments (e.g., ETFs, real estate, corporate bonds) offer a balance between safety and return potential. High-risk investments (e.g., stocks, cryptocurrencies, startups) have the potential for higher returns but come with the possibility of significant losses.
01 Relationship Between Risk & Reward
Low-risk investments (e.g., government bonds, savings accounts) offer stable but lower returns. Moderate-risk investments (e.g., ETFs, real estate, corporate bonds) offer a balance between safety and return potential. High-risk investments (e.g., stocks, cryptocurrencies, startups) have the potential for higher returns but come with the possibility of significant losses.
01 Direct Relationship Between Risk and Reward
Low-risk investments (e.g., government bonds, savings accounts) offer stable but lower returns. Moderate-risk investments (e.g., ETFs, real estate, corporate bonds) offer a balance between safety and return potential. High-risk investments (e.g., stocks, cryptocurrencies, startups) have the potential for higher returns but come with the possibility of significant losses.
02 Risk-Adjusted Returns
Not all high-risk investments provide proportionally high returns. Smart investors look at risk-adjusted returns, using measures like the Sharpe ratio or Sortino ratio to compare investments with similar risk levels.
02 Risk-Adjusted Returns
Not all high-risk investments provide proportionally high returns. Smart investors look at risk-adjusted returns, using measures like the Sharpe ratio or Sortino ratio to compare investments with similar risk levels.
02 Risk-Adjusted Returns
Not all high-risk investments provide proportionally high returns. Smart investors look at risk-adjusted returns, using measures like the Sharpe ratio or Sortino ratio to compare investments with similar risk levels.
03 Types of Investment Risks
Market Risk: Price fluctuations due to economic or geopolitical events. Liquidity Risk: Difficulty in selling an asset without a major price impact. Credit Risk: The chance that a borrower or company will default on a loan or bond. Inflation Risk: The risk that purchasing power will decline due to inflation. Interest Rate Risk: Fluctuations in interest rates affecting bonds and other fixed-income securities.
03 Types of Investment Risks
Market Risk: Price fluctuations due to economic or geopolitical events. Liquidity Risk: Difficulty in selling an asset without a major price impact. Credit Risk: The chance that a borrower or company will default on a loan or bond. Inflation Risk: The risk that purchasing power will decline due to inflation. Interest Rate Risk: Fluctuations in interest rates affecting bonds and other fixed-income securities.
03 Types of Investment Risks
Market Risk: Price fluctuations due to economic or geopolitical events. Liquidity Risk: Difficulty in selling an asset without a major price impact. Credit Risk: The chance that a borrower or company will default on a loan or bond. Inflation Risk: The risk that purchasing power will decline due to inflation. Interest Rate Risk: Fluctuations in interest rates affecting bonds and other fixed-income securities.
04 Diversification: Reducing Risk Without Sacrificing Reward
A well-diversified portfolio spreads risk across multiple asset classes. Example: A mix of stocks, bonds, real estate, and commodities helps balance the risk-reward equation.
04 Minimize Risk, Maintain Reward
A well-diversified portfolio spreads risk across multiple asset classes. Example: A mix of stocks, bonds, real estate, and commodities helps balance the risk-reward equation.
04 Diversification: Reducing Risk Without Sacrificing Reward
A well-diversified portfolio spreads risk across multiple asset classes. Example: A mix of stocks, bonds, real estate, and commodities helps balance the risk-reward equation.
05 Time Horizon and Risk Appetite
Short-term investors tend to prefer lower-risk investments. Long-term investors can afford to take more risks, as market fluctuations tend to even out over time.
05 Time Horizon and Risk Appetite
Short-term investors tend to prefer lower-risk investments. Long-term investors can afford to take more risks, as market fluctuations tend to even out over time.
05 Time Horizon and Risk Appetite
