Do you agree that investors should always seek to Maximise their return from investing?

Disagree. In this case investors would seek the assets expected to return the most regardless of their risk. The correct statement is that investors should seek to maximize their returns for a given level risk.

Why is the risk/return trade-off important from an investment perspective?

According to the risk-return tradeoff, invested money can render higher profits only if the investor will accept a higher possibility of losses. Investors consider the risk-return tradeoff as one of the essential components of decision-making. They also use it to assess their portfolios as a whole.

How risk/return trade-off can be carried out by an investor?

What is Risk-Return Tradeoff? The risk-return tradeoff states that the potential return rises with an increase in risk. According to the risk-return tradeoff, invested money can render higher profits only if the investor will accept a higher possibility of losses.

Why most investors prefer to hold a diversified portfolio of securities as opposed to placing all of their wealth in a single asset?

Why do most investors hold diversified portfolios? Investors hold diversified portfolios in order to reduce risk, that is, to lower the variance of the portfolio, which is considered a measure of risk of the portfolio.

What is the meaning of the higher the risk the higher the return?

The higher the risk, the higher the return. . If the risk of doing business is high, the corresponding return must be also high. This is the general principle. If an investment is very risky, the return from that investment must also be high enough to attract investors.

What is the meaning of the popular saying higher risk higher return?

There is a general principle in finance which goes as “Higher risk higher return”. When an investor chases a greater return in investment, he needs to take a higher level of risk. For a low return on investment, the risks are also relatively low.

How do you explain risk/return trade-off?

The risk-return trade-off states that the level of return to be earned from an investment should increase as the level of risk goes up. Conversely, this means that investors will be less likely to pay a high price for investments that have a low risk level, such as high-grade corporate or government bonds.

What is risk/return trade-off give an example?

Definition: Higher risk is associated with greater probability of higher return and lower risk with a greater probability of smaller return. Description: For example, Rohan faces a risk return trade off while making his decision to invest. …

What is trade-off risk and return?

What is the Risk-Return Tradeoff? The risk-return trade-off states that the level of return to be earned from an investment should increase as the level of risk goes up. Others have a higher risk tolerance and so will buy riskier investments in pursuit of a higher return, despite the risk of losing their investments.

Should you diversify investments?

Diversification can help an investor manage risk and reduce the volatility of an asset’s price movements. You can reduce the risk associated with individual stocks, but general market risks affect nearly every stock and so it is also important to diversify among different asset classes.

Why a diversified portfolio is important?

Diversification ensures that by not “putting all your eggs in one basket,” you will not be creating an unwanted risk to your capital. Diversifying your stock portfolio is important because it keeps any part of your investment assets from being too heavily weighted toward one company or sector.

Do you believe on the principle higher risk provides higher return?

Yes. Higher risks equal higher returns. Sometimes, you may feel like you are achieving a higher return at low risk. But that is not the case.

What is the risk-return tradeoff?

The relationship between these two aspects of investment is known as the Risk-Return Tradeoff. The theory deals with how much an investor is willing to risk in order to increase the chances of higher returns. ‘Risk’ is inherent in every investment, though its scale varies depending on the instrument.

How do you incorporate the risk-return trade-off into your portfolio?

But first, let’s get away from all this hypothetical talk and give you something you can sink your teeth into. One of the primary ways that the risk-return trade-off is incorporated into a portfolio is through the selection of various asset classes.

What are high-risk-high-return investments?

When an investor considers high-risk-high-return investments, the investor can apply the risk-return tradeoff to the vehicle on a singular basis as well as within the context of the portfolio as a whole. Examples of high-risk-high return investments include options, penny stocks and leveraged exchange-traded funds (ETFs).

What is the difference between risk and return in investing?

‘Risk’ is inherent in every investment, though its scale varies depending on the instrument. Return, on the other hand, is the most sought after yet elusive phenomenon in the financial markets. In order to increase the possibility of higher return, investors need to increase the risk taken.