A short primer on risk and return.
A version of this article was published in the May 2013 issue of Morningstar ETFInvestor. Download a complimentary copy here.
The potential for sleepless nights is why investments offer expected returns in excess of cash interest rates, so-called "risk premia." It really can't be any other way. High-return, low-risk opportunities attract mountains of capital as fresh meat attracts piranhas, and they're devoured just as rapidly. The result is a fairly efficient market. For the majority of investors, the only reliable way to obtain higher expected returns is to take on more risk.