4 ms·
>My gut feeling is that equity should have the best return as it involves the most risk. 'Should' is an interesting word isn't it :). However the higher the ri
by rpz 7y ago
>My gut feeling is that equity should have the best return as it involves the most risk.
'Should' is an interesting word isn't it :). However the higher the risk, the higher the chances that you may not get the return you are looking for.
- benj111 7y agoRisk should be captured in the standard deviation though. My thinking for 'should' is that faced with 2 options 1 risk free the other with a 50% failure rate, you would rationally go for the risk free option if they both yielded the same income. Even if the yield on the risky option were double it still isn't rational to go for that investment, why spend the years fretting when you can go for the risk free option for the same outcome. So clearly a risk premium is required to entice people into those riskier investments.