Risk vs Reward
There is no extra expected return without extra risk — every pitch claiming otherwise is mispriced or a lie.
The Core PrinciplesBeginner 5 min read· Lesson 10 of 13 in Investing Fundamentals
The tradeoff
Markets price risk: T-bills pay least, investment-grade bonds more, equities more still, small/speculative equities the most — because each step up can lose more, more often. Higher expected reward is compensation FOR risk, not a coupon you clip risk-free.
What risk actually is
Volatility (how much the ride bounces), drawdown (how far it falls peak-to-trough), and permanent loss (the business fails). You can diversify away single-company risk; you cannot diversify away market risk — that's the risk equities pay you to hold.
Practical test
Before any investment, ask: what's the realistic worst case, how likely is it, and could I hold through it? If an offer claims high returns with no risk, the risk is simply hidden from you.