Risk-Reward ratio

The more risk you take, the more reward you need to get to be worth the risk. The more risk you take, the more reward you need to get to be worth the risk. Higher risk investments must pay more dividends to offset the risks of losing it, in order to entice investors. Lower risk investments, can pay less (lower interest) because they're "safer". ℹ️ Info

The more risk you take, the more reward you need to get to be worth the risk

An analogy is:

• you put in $1, and I’ll flip a coin. Heads I keep it, tails you get $2.

Regardless of whether you’re a gambler, that’s fair.

But if I said, we’ll roll a dice (die), and a 1 and you get $2, otherwise I keep the $1, and you’d know it is unfair. There’s only a 1:6 chance you’ll win, and a 1:1 payout, you’d need a $6 payout to make it fair. Why? Because there’s more risk of a loss, so the reward has to balance the risk. That's the risk-reward ratio.

High risk investments must pay more dividends to offset the risks and entice investors.

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Terms We need to agree on what terms mean. This used to be easy, before SJW's/Marxists started Orwelling our language.

Financial Terms These are a bunch of financial terms (concepts really), that you can scan to get familiar with the jargon and ideas.

Tags: Terms  Financial Terms