Question

Please Help: how do safe investments usually have a lower rate of return than riskier ones. Should be written in a paragraph

Answer 1

Safe investments usually stay stable on the stock market, and don't go up very fast. Risky investments can shoot up or shoot down. If you invest money into a safe investment, you're less likely to gain lots of money, or lose lots of money. If you invest in riskier ones, you're a lot more likely to gain lots of money, but you also are more likely to lose money.

Answer 2

The safe investments tend to have low return because it gives constant and stale returns.

Further Explanation:

Risk-Return Tradeoff:

Risk-Return Tradeoff refers to the position where the increase in the risk increases the return. This theory states that the investment can give higher profit only when the investor accepts a higher possibility of losses.

Explain how safe investments usually have a lower rate of return:

The safe investments refer to the investment in the securities that are considered to have a stable future income. The investments with stable and constant returns tend to have a lower rate of return. The investment in blue-chip companies is an example of a safe investment. Blue-chip companies tend to give lower returns, but they have strong consistency. The blue-chip companies are the established companies that have already captured the market and earned the maximum possible profit. Now, they have stable returns as they have already exhausted the business opportunity and earned the profit from them.  

A start-up is an example of a riskier investment. The start-up may get sky-high returns if it gets an appropriate business opportunity. However, the chances of failure are very high because the start-up has limited capital, resources, market share. It would not be able to tackle the adverse situations efficiently. Therefore, riskier investment options tend to have a higher rate of return and higher risk.

Thus, safe investments tend to have low return because it gives constant and stale returns.

 

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Answer Details:

Grade: Middle school

Chapter: Investments

Subject: Accounting  

Keywords: safe, investments, usually, have, lower, rate, return, than, riskier, ones, Should written, paragraph.