Risk & Reward
Usually, the possibility of earning more comes with the possibility of losing more.
Not all investments are the same
Option A
Very low risk, small potential return.
Option B
More risk, larger potential return.
Option C
High risk, potentially large gain or loss.
Risk and reward
Risk means there's uncertainty about what will happen to your money — it might grow, stay similar, or fall. Reward is the potential benefit from taking that risk — growth in value, or income such as dividends.
Higher risk does NOT guarantee higher returns. It only means there is greater uncertainty and potential for loss.
Diversification helps, but doesn't fix everything
Spreading investments — like in an index fund — can reduce some risks, but it cannot remove investment risk entirely.
Long time horizons vs short ones
Someone investing for many years may have more time to experience ups and downs than someone who needs the money soon.
Which would you choose?
Given Option A, B and C above, which would you choose and why?
There's no single correct answer — it depends on how much risk feels comfortable to you, and what you're saving or investing for.
This lesson is about understanding risk, not choosing investments. Try to avoid showing speculative investments as exciting or desirable.
Where to next
More on index funds and shares.