Our customer support team is here to answer your questions. Ask us anything!
👋 WhatsApp Us Now
Your boss has asked you to put together an informal outline/presentation on the risk-return tradeoff. In your own words, discuss the tradeoff. Does a risky investment always equal a big payoff and vice versa? What does it mean to be a risk-averse versus a risk-taker? What types of information must be considered when it comes to risk and return? Explain. Include references citation format is APA. plus 500 words
The Risk-Return Tradeoff is the idea that the return on an investment correlates with the level of risk taken for that investment. When investing, it is important to weigh both potential risks and rewards as part of a decision making process. In other words, if higher returns are desired then higher levels of risk must be accepted (U.S Securities and Exchange Commission, 2017). It is not necessarily true that a risky investment always equals a big payoff or vice versa; different investments carry different levels of risk and reward which may vary depending on economic conditions or market trends at any given time (Finley & Lawrence, 2019).
When considering the tradeoff between risk and return there are two main investing strategies to consider: being risk-averse or being a risk-taker. A person who takes a conservative approach to investing may opt to invest in low-risk/low-return assets such as savings accounts , certificates of deposit (CDs), money market accounts etc. A person who takes an aggressive approach may opt for high-risk/high -return investments such as stocks, commodities, options contracts etc., although these can often result in greater losses when markets turn south .
In order to make informed decisions about where and how much capital should be allocated for various asset classes investors will have access to financial statements from their brokerages along with research reports from independent analysts covering specific companies and industries (Investopedia, 2019). This information generally includes current stock prices as well as estimated past performance data which can give insight into an asset’s volatility over time . Additionally, macroeconomic indicators such as GDP growth rate , unemployment figures , consumer sentiment surveys , inflation rate etc., can help provide context around overall economic conditions so investors know what they’re getting into before they commit funds . Lastly while this isn’t always necessary it could be helpful to consult tax professionals or other experts prior to engaging in any particular type of investment activity so advice related specifically tailored individual portfolio objectives can be provided.
To summarize The Risk Return Tradeoff is something all investors must consider when making decisions about how allocate their capital across different asset classes. It’s important understand that not every risky venture will yield large returns but also note that safe havens don’t guarantee great gains either. Investors must take into account both macroeconomic trends along with company specific financial documents when deciding how much exposure they want each asset class before committing any funds .
Reference List :
Finley K & Lawrence D 2019 , Investopedia What Is Risk vs Return? https://www.investopedia.com/ask/answers/022615/what-risk-vs.-return Accessed 8 August 2020
Investopedia 2018 ‘Financial Statement Analysis’ http://www.investopedia.com/terms /f /financialstatementanalysis Accessed 11 August 2020
U S Securities & Exchange Commission 2017 Introduction To The Risks And Rewards Of Investing https://www..secgov./oiea//introduction–risks–rewards–investing Accessed 8 August 2020