16-1 Describe how risk-return relationships, risk tolerance, and asset diversification and allocation relate to the fundamentals of investments.
Various types of investments have different risk-return relationships. On one hand, the least risky investments offer the least amount of return. On the other hand, the riskiest investments offer the greatest return.
Investing is not for everyone, and the level and type of investments is personal and depends on the investor’s risk tolerance level.
Investment portfolios should be allocated, or spread out, among different types of investments, such as stocks, bonds, and cash, to further reduce investment risk. Asset allocation changes as investors reach life milestones; portfolios ...