Published Article Details

Smart things to Know about risk-return trade-off

Posted by: Labdhi Mehta on May 29, 2017, 06.30 AM IST

1. Investors seeking a high rate of return for their portfolios can hold a dominant portion in growth assets, which provide a high return, but also feature higher risk.

2. Investors seeking a low level of risk in their portfolios can primarily choose income assets, which also provide a low level of return.

3. The portfolio of an investor is optimised when he invests in products with the lowest level of risk for a given level of return; or one with the highest level of return for a given level of risk.

4. The investor’s risk appetite and the level of downside risk he is willing to take, is a critical component of portfolio construction. 

5. Asset allocation is the formal process of constructing a portfolio that meets the risk and return requirements of the investor. 

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