Lack of Understanding

One of the primary deterrents to investors earning market rates of returns is their lack of understanding of the relationship between risk and return. The natural tendency of investors is to want returns without the risk. Because risk is the source of returns, investors would be better served to be more concerned with the risk level of their investments.

The overall concept of the risk/return relationship is that when risk increases, the expected return on the asset should also increase as a result an expected risk premium. Investors should not expect high returns on an investment if they aren't taking a high degree of risk. If you bet on last year's defending champions to win the World Series, your neighborhood
bookie will give you much lower odds than if you bet on Major League Baseball's cellar dweller from last season. You are obviously taking a lot more risk by putting your money on the last place team.

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