Investing · 3 min read
Risk and Return
Higher expected returns come with higher risk. There's no free lunch in investing.
Why it matters
Understanding your risk tolerance prevents panic selling at the worst time.
Advantages
- Better decision-making
- Realistic expectations
- Sleep-at-night portfolio
Risks
- Overconfidence in bull markets
- Underestimating drawdowns
Real-world example
Equity may return 12% long-term but with 30%+ drops on the way; FDs return ~7% with almost no volatility.
Key takeaways
- Accept volatility as the cost of higher returns
- Match instrument to time horizon
- Position sizes matter more than picks
Quick quiz
1. If someone promises 'high returns with no risk', it is: