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Risk-Return Tradeoff


Definition: the Risk-Return Tradeoff aka the Risk/Reward Tradeoff is an investment theory which states that an asset’s potential return is directly related to the level of risk the investor takes. This means that the higher the potential return an investment offers, the higher the level of risk associated with it will be, and vice versa.
The risk return trade-off can is a fundamental investing concept that helps to improve portfolio diversification and risk management among others. However, criticisms include the assumption of efficient markets and not considering behavioural factors.


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More on investing: Alternative Investments, Asset Management, Break-even Point, BRIC Countries, Capital Structure, more on investing...

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