How do you describe the relationship between the risk and return of an investment?

Knowledge and hard work also skew this relationship. The higher your knowledge and effort (time put in researching), the greater your investment return will become while lowering your risk.

The higher the risk, the greater the return.

Great question! The higher the risk the greater the payoff!

Risk means that the stock can move up or down quickly.

This uncertainty carries a price. This price means that most investors want a premium or more return (profit) than "safe" stocks.

ROE or return on equity (your money) means how much money you can expect to make, or lose, should you buy the equity.

Higher risk, means that investors want a higher ROE.

William

How much do you lose now ? When do you get some back ?
When do you pass into pure profit ? Any further undisclosed loss opportunities ?

Usually the higher the risk, the greater POSSIBILITY for a higher return. For example, a $1 lottery ticket is low risk (only a dollar), but the reward is great (millions) but the likelihood is very low. On the other hand, putting all your $ into a bio-company is high risk (you don't know if they will discover a new drug) but if they do the reward is great.

Focus on the likelihood to level out the risk/reward equation. Something highly likely will have a very low reward. Remember, there is nothing wrong with lots of little gains. The huge gains are hard to come by.

The higher the risk, the greater the expected return. If an investment has a high risk, then you would expect a higher return, for the risk you take. The expected return is the risk free rate, like a treasury bond, plus a risk premium. The risk premium is usually defined as the difference between the historic return of an index like the S and P 500 and a treasury bond.