Risk vs reward

Simple explanation

Higher potential returns almost always come with higher risk. There's no 'free money' — anything that looks like it usually isn't.

Picture this

A roller coaster vs a train ride. Both get you somewhere. The coaster is faster and scarier. The train is steady and slower.

— Tally

Real example

Stocks historically return 6-9% per year but can drop 30-50% in a bad year. Bonds return 2-4% per year but typically swing much less.

Common mistake

Chasing the highest-return investment without understanding the risk. If a 20%+ return is promised, the risk (or fraud) is usually high.

Quick check

Takeaway

Match the risk to your time horizon and your sleep quality. Both matter.

Related glossary terms