The Trade-Off Between Risk and Return

Even when all non-compensated risk has been eliminated from a portfolio, an investor cannot escape the systematic risks inherent in the market itself. As previously mentioned, history shows an investment in the U.S. market as a whole has delivered about 9.6% a year on average for the last 86 years, but not without substantial uncertainty. Risk and return go hand in hand. To obtain greater stock returns, the trade-off is suffering significant short-term volatility, such as that investors experience first-hand every day, with about 49% of daily returns being negative.

Step 8MarketRiskReturn