Investing Basics

Risk and Return

All of us want our investments to produce satisfactory returns.  At the same time, there is risk involved.  This relationship between risk and return is often overlooked.

As the table below shows, almost universally, high returns come with high volatility and low returns come with low volatility.  Generally speaking, stocks have higher returns and higher volatility than government bonds.

1927 - 2008
Emerging Market Stocks
15.2 %
28.7 %
US Large Stocks
10.3 %
US 5-year Government Bonds
4.9 %
3.6 %
US Treasury Bills
4.1 %
1.5 %

This high volatility / high return and low volatility / low return relationship generally is true for markets around the world.  Israel is no exception.

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