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The Risk / Rate-Of-Return Relationship

Last Updated: February 24, 2007 | Related resource areas: Personal Finance

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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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