The Risk / Rate-Of-Return Relationship

Personal Finance February 24, 2007 Print Friendly and PDF

Generally speaking, risk and rate-of-return are directly related. As the risk level of an investment increases, the potential return usually increases as well. The pyramid of investment risk illustrates the risk and return associated with various types of investment options. As investors move up the pyramid, they incur a greater risk of loss of principal along with the potential for higher returns.

Pyramid of Investment Risk
Pyramid of Investment Risk

Source: National Institute for Consumer Education, 1998

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.