The Relationship Between Risk and Return Explained

Break down the math and learn how risky investments sometimes pay off

There is no such thing as zero risks. It doesn’t exist. If someone offers you a zero-risk investment, you’d likely to better off betting on 32 on the roulette wheel. How we assess risk has everything to do with our expected return.

Some people are risk-takers. Others are cautious players. For most of us, it’s not that simple. You may take risks with your money, but play your career very safe. Others do the opposite.

Meet John and Stewart

Stewart likes his coffee with one cream, no sugar. John likes his Scotch neat.

Stewart commutes 45 minutes to work so he can live in a more economically available area. John walks to work from his downtown apartment.

Stewart entrusts his money to GICs and Government Bonds. John invests his money in Cryptocurrencies and Overseas ventures.

Stewart wants to make sure he receives 3.2% per year on his money. John wants a double or a triple.

Who is right? Who is wrong?

Stewart takes a risk-averse approach and wants a sure thing over the risk. John is willing to take some risk, but when he goes, he wants a big payoff.