Risk-Return Tradeoff

Risk-Return Tradeoff

Investors weigh up investment risk using a variety of tools that give them a clear indication of the risk of loss. Depending on their risk appetite, risk tolerance, time horizon and loss probabilities, investors will pick their sweet spot for risk, ignoring the higher expected returns that come with higher-risk investments if that means exceeding their appetite for risk. This is the risk-return trade-off, where return is assessed against risk.

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