what is risk return tradeoff 
risk return tradeoff states that the potential return rises with an increase in risk using this principle individuals associate low levels of uncertainty with low potential returns and high levels of uncertainty or risk with high potential returns according to risk return tradeoff invested money can render higher profits only if the investor will accept a higher possibility of losses sydney saporito investopediaunderstanding risk return tradeoffrisk return tradeoff is the trading principle that links high risk with high reward the appropriate risk return tradeoff depends on a variety of factors that include an investor s risk tolerance the investor s years to retirement and the potential to replace lost funds time also plays an essential role in determining a portfolio with the appropriate levels of risk and reward for example if an investor has the ability to invest in equities over the long term that provides the investor with the potential to recover from the risks of bear markets and participate in bull markets on the other hand if an investor can only invest in a short time frame the same equities have a higher risk proposition investors use risk return tradeoff as one of the essential components of each investment decision as well as to assess their portfolios as a whole at the portfolio level risk return tradeoff can include assessments of the concentration or the diversity of holdings and whether the mix presents too much risk or a lower than desired potential for returns uses of risk return tradeoff