The big idea
⚖️
No reward without risk
As a rule, the higher an investment’s potential return, the higher its risk of loss.
Finance · Lesson 7
Risk and Return
beginner⏱ 13 min · 7 cards
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The trade-off
Higher expected return usually means bigger ups and downs.
Key term
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What is risk, exactly?
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Risk
The chance an investment’s actual return differs from what you expected — including losing money.
Nuance
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Think like a Maester
Match risk to your time horizon and how well you sleep at night.
Recap
Key takeaways
- ✓Higher expected return means a wider range of outcomes, not a better guaranteed one.
- ✓The six major risks are market, inflation, credit, interest-rate, liquidity, and business.
- ✓Cash is not risk-free; it concentrates inflation risk.
- ✓Tolerance is emotional; capacity is financial; they often disagree.
- ✓A plan you will actually maintain beats an optimal one you abandon.
Quick check
Which best describes what finance is about?
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