What is risk-return tradeoff?
All investments are subject to risk. Risk refers to the possibility that an investment could lose value or not gain any additional value because of swings in the financial markets.
All investments have a risk-return tradeoff. Historically, lower-risk investments — like cash equivalent (e.g., fixed deposit) investments — have typically offered lower potential for long-term growth and investment return. Higher-risk investments — like stock investments — have typically offered greater potential for long-term growth and investment return.
By understanding the risk associated with various investment options, you can choose investments that best match your risk tolerance and personal circumstances.