Understanding the Relationship Between Risk and Return

The concept that higher risk does not guarantee higher returns is emphasized, differentiating between potential for reward and assurance of it. While conventional wisdom suggests that taking on more risk inherently leads to greater returns, this perspective overlooks the reality that many high-risk investments do not yield positive results. For instance, engaging in high-risk activities like gambling on single stocks often results in net losses over time, contrary to the expectations of gaining from increased risk. Recognizing this distinction is crucial for investors who must understand that they may sacrifice certainty without necessarily achieving the desired financial rewards.